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The economic recovery from the coronavirus pandemic is taking shape. It is necessary to realize a virtuous cycle in the economy by ensuring that pay increases agreed upon in the shunto spring labor wage negotiations this year lead to a vitalization of consumption.
The preliminary real gross domestic product (GDP) for January-March 2023 increased by an annualized 1.6% from the previous quarter, marking the first positive growth in three quarters. This is because the real growth rate for October-December 2022 was downgraded from positive to negative growth.
Personal consumption, which accounts for the majority of GDP, grew 0.6% from the previous quarter, marking an increase for the fourth consecutive quarter. The normalization of economic activities led to an upturn in the dining and accommodation sectors, among other industries. Automobile sales were also strong.
The recovery in consumption has boosted corporate earnings. The performance of railway companies, department stores and other businesses improved, and the total final earnings of listed companies are expected to reach a record-high level in the fiscal year ending March 2023.
The Nikkei Stock Average topped the 30,000 mark for the first time in one year and eight months, due partly to the strong GDP growth rate.
It is important to take advantage of such favorable factors to steer the economy to strong growth.
In this year’s shunto negotiations, many major companies offered to meet the full amount requested by their unions. The responses to unions’ requests for higher pay, which exceeded the 5% increase sought by the Japanese Trade Union Confederation (Rengo), were outstanding. These responses have been reflected in wages since April.
However, there are concerns about the negative impact of high prices on consumption. The consumer price index, excluding perishables, rose 3.1% in March on a year-on-year basis, and prices continue to rise.
To overcome high prices and further expand consumption, it is important not to limit wage hikes only to this year’s shunto negotiations, but to continue the trend of pay increases. The government must strive to shore up pay for a wide range of workers through such measures as raising minimum wages.
Capital investment by companies grew by 0.9%, marking the first rise in two quarters, due to increased investment in LED lighting and other electricity-related equipment.
The growth rate was low, however. Active investment by companies is essential for decarbonization, digitization and labor-saving to deal with labor shortages, among other objectives. Hopefully, companies with strong performances will use their earnings to invest aggressively, rather than hoarding funds.
On the other hand, exports fell 4.2%, marking the first decline in six quarters. This is the largest decline since the April-June period of 2020 when the coronavirus pandemic hit the Japanese economy hard. Due to slowdowns in overseas economies, exports of automobiles and semiconductor manufacturing equipment were sluggish.
The outlook for overseas economies is unpredictable due to rapid interest rate hikes by central banks in the United States and Europe. Another concern is simmering credit uncertainty in the wake of a string of failures of midsize U.S. banks.
It is hoped that the Japanese government and the Bank of Japan will be fully prepared to respond quickly in the event of a resurgence of financial instability.
