Will easing COVID-19 restrictions bring back normal consumption?

Japan’s economy is certainly at a crossroads as to whether it is headed for a full-fledged recovery. It is essential for the government to take effective measures.

The preliminary figures for real gross domestic product (GDP) for the July-September period of 2021 showed an annualized 3.0% decline from the previous quarter, the first negative growth in two quarters since the January-March period.

A prolonged state of emergency due to the spread of the novel coronavirus caused personal consumption, which accounts for the majority of GDP, to decline by 1.1% from the previous quarter.

In addition to the slump in the food and beverage as well as lodging sectors, the shortage of semiconductors and stagnant procurement of parts from Southeast Asia put the brakes on auto production, resulting in declined new vehicle sales.

The decrease in automobile production also affected overall exports, which fell 2.1%, the first decline in five quarters. Also, corporate capital investment fell by 3.8% in the quarter.

Europe, the United States and China maintained growth in the July-September quarter, making Japan’s slump conspicuous. This is probably due to the delay in the normalization of economic activities.

Now that the spread of novel coronavirus infections has subsided, prompt policy support is desirable.

In the Economy Watchers Survey, which indicates public sentiment on the economy, the diffusion index for current economic conditions in October improved to the highest level in seven years and nine months. There is an expectation that consumption, which had been held back until now, will grow significantly as a reaction.

The government is scheduled to finalize an economic stimulus package on Friday. It is more important to create an environment in which consumers can spend with peace of mind rather than to opt for measures based on the premise of large-scale handouts.

Later this month, the government plans to ease restrictions on activities related to dining out and events. By using proof of vaccination certificates and proof of a negative result of PCR tests, infection control and economic activities need to be balanced.

The government is considering restarting at the beginning of next year the “Go To Travel” program to support the tourism industry. It is hoped that the government utilizes the program to revitalize the tourism industry while taking thorough measures anew to prevent infections.

At the same time, it is necessary to take flexible responses, such as stopping the program promptly in case infections start to spread again.

On the other hand, risk factors have emerged for corporate performance, such as soaring fuel and raw material prices, in addition to the shortage of semiconductors. Due in part to the weakening of the yen, the producer price index, which indicates transaction prices among companies, rose 8.0% in October compared to the same month last year. There are concerns about rising costs.

Prime Minister Fumio Kishida intends to encourage companies to raise wages under his “virtuous cycle of growth and distribution” policy, but rising costs may hinder this.

The government must also pay attention to growth strategies that will raise the growth potential of companies, such as strongly encouraging digitization and decarbonization efforts.

— The original Japanese article appeared in The Yomiuri Shimbun on Nov. 16, 2021.