Examine risk factors, shore up domestic demand

It has been confirmed that the nation’s economy is on a recovery track. However, there are many risk factors for the future. The government needs to keep a close watch on prices and overseas economic trends to prevent the economy from slowing.

The preliminary quarterly estimate of real gross domestic product for the April-June quarter of 2022 indicated an annualized 2.2% increase from the previous quarter. Real GDP in the January-March quarter was revised from negative growth to slightly positive, marking the third consecutive quarter of positive growth.

Annualized real GDP in the latest quarter totaled ¥542.1 trillion, surpassing the ¥540.8 trillion in the October-December quarter of 2019 and recovering to its pre-pandemic level.

This was mainly due to a recovery in private consumption, which accounts for a majority of GDP. Private consumption increased 1.1% from the previous quarter, following the lifting in March of quasi-emergency priority measures to prevent the spread of the novel coronavirus. Consumption of services such as dining out and travel increased. In capital investment by companies, software investment was one of the strong areas.

The pickup in the two pillars of domestic demand — private consumption and capital investment — is welcome. To maintain this trend, the government should put more emphasis on measures to curb the spread of coronavirus infections, such as by encouraging young people to receive a third dose of vaccine, in an effort to strike a balance with economic activities.

At the same time, many causes of concern have emerged for the economy since July.

Prices of food and fuel are rising sharply. To combat soaring prices, the government intends to keep unchanged from October its selling price of imported wheat to milling companies, even though it was expected to see a sharp rise. It is also considering extending subsidies that are aimed at lowering gasoline prices, a support measure that is currently scheduled to expire at the end of September.

However, the rise in prices for food and fuel, areas in which Japan relies on imports, is highly likely to be prolonged, and it is uncertain how far such measures can be sustained amid the nation’s fiscal predicament.

If prices rise at a time when wages are not increasing sufficiently, it could cool consumption. It is also worrying that another outbreak of the coronavirus is casting a shadow on service consumption.

The government should intensively support low-income earners, who are highly vulnerable to rising prices of daily necessities and the effects of the pandemic. It is essential to realize widespread minimum wage increases and raise remuneration for workers, including nonregular employees.

In the United States and Europe, interest rates are being raised in an attempt to bring inflation under control, but this is having a negative effect on their economies. In the April-June quarter, the United States’ real GDP contracted for the second consecutive quarter.

The economy of China, which has followed a zero-COVID approach, is likewise slowing down. Any change in overseas economies would also have a negative impact on the Japanese economy through a decline in exports.

It is important to achieve an economic recovery that does not rely on external demand but is led by domestic demand. It is hoped that the government will take effective measures to encourage not only consumption but also corporate investment in technological innovation for decarbonization and digitization.

(From The Yomiuri Shimbun, Aug. 17, 2022)