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Full TextThe Japanese economy is continuing to recover, although at a gradual pace. Certain sectors are growing supported by the increase in IT-related demand, but the effect of structural problems, such as high levels of debt and employment, are acting as a restraint, and growth of the economy as a whole continues to lack robustness. Real GDP growth in the July-September quarter was 0.2% over the previous quarter, the third consecutive quarter of positive growth. Government spending fell owing to the diminution of the effects of the Policy Measures for Economic Rebirth and the stagnation in construction orders from local governments, but increases in private-sector demand made up for this. However, the increase in private-sector demand was almost entirely due to gains in private capital investment, while private consumption remained level with the previous quarter. Compared with the corporate sector, recovery in the household sector remains weak. Moreover, as a result of the sudden slowing of exports, the contribution of external demand became negative.
In the latter half of fiscal 2000, gradual recovery is expected to continue supported principally by the corporate sector, and for the full fiscal year (ending March 31, 2001) real GDP is expected to rise 1.9%, the second consecutive year of positive growth. Judging from the strong increases in orders for machinery and equipment (excluding the shipping and electric power industries from private-sector orders), which are a leading indicator for capital investment, the driving force for the economy for the remainder of fiscal 2000 will continue to be private capital investment. After significant gains in the previous half-year, corporate profitability is expected to show a further substantial improvement in the latter half of fiscal 2000. Private consumption is likely to show a slight improvement in the second half of fiscal 2000. This will be supported by continued increases in income accompanying the gradual improvement in the employment environment as corporate performance shows further gains. Public works investment is expected to provide support for the economy as the effects of the economic policies announced in fall 2000 emerge in the months ahead. The support provided by external demand is forecast to weaken. The slowdown in the U.S. economy is already becoming more pronounced, and this, together with signs of a weakening in the global economy, are expected to bring slower growth in exports. On the other hand, domestic demand, principally for IT-related and certain other goods, remains firm. Imports are therefore likely to increase steadily, further weakening the support provided by external demand.
The Japanese economy is expected to show 1.3% growth in real GDP in fiscal 2001, ending March 31, 2002, marking the third consecutive year of positive growth. The government sector will contribute only 0.4 percentage point of this increase, while the private sector will provide 0.9 percentage point, thereby raising the overall growth rate. Thus, at least in form, recovery led by the private sector will continue, but the rate of expansion will be slower than in fiscal 2000. Among components of private-sector demand, the contribution of consumption will rise to 0.8 percentage point, and the contribution of capital investment will decline to 0.2 percentage point. Therefore, the role of private consumption as the driving force for the economy will increase relative to other demand components. There is a strong possibility of a temporary decline in production in the first half of fiscal 2001 because of slight inventory adjustments. The rate of increase in exports is expected to decline markedly owing to the slowdown in economies overseas. As a result of the expected decline in corporate profitability, private capital investment may fall below the level in the previous six-month period during the first half of fiscal 2001. Private consumption is expected to take the place of investment as the principal support for the economy. Consumption is forecast to remain firm throughout fiscal 2001 as the employment and income environments show improvements. As the inventory adjustments will be completed in the second half of fiscal 2001, production will gain strength, and capital investment will begin to rise again. Because the decline in the performance of the corporate sector will be temporary, there will be no aggressive employment adjustments, and entry into a period of serious economic downturn will be avoided.
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