![[PDF]](../../images/pdficonsmall.gif)
Full TextThe Japanese economy recorded 0.8% real GDP growth over the previous quarter in the October-December period of 2000, the first positive figures in two quarters. The GDP deflator fell 1.7%, reflecting continued deflationary pressures, and nominal GDP was up 0.2%, thus returning to the positive range.
However, the corporate sector, which had led the recovery, is showing signs of a slowdown. As a result of the decline in growth in the United States and other parts of the world economy and the fall in the value of the euro up to that point, exports from Japan declined on a volume basis, thus having a negative impact on industrial production. From the inventory cycles, it appears the industrial sector has moved from a period of "intended inventory investment" to "unintended inventory investment." Industrial production will decline in the January-March quarter of 2001. Similarly, although private non-residential investment continues to recover, orders for machinery and equipment (excluding the shipping and electric power industries from private-sector orders), which are a leading indicator of investment, are expected to decline in the January-March quarter, thus generating concern about future trends in investment.
Recovery in the household sector is lagging behind that in the corporate sector. Private consumption on a GDP basis continued to remain level since the April-June quarter of 2000 and recorded a decline of 0.6% from the previous quarter in the October-December quarter of 2000. Factors accounting for this are the lagging recoveries in the employment and income environments. It appears that, contrary to expectations, the winter bonus for 2000, which had been expected to rise above the level of the previous year along with the increase in corporate profits, declined. The unemployment rate remains at historically high levels. And according to latest data the increase in the number of employed persons is shrinking. Judging from the employment and income environments, there is also cause for concern about future trends in consumption.
Positive growth over the previous quarter is expected to continue in the January-March period of 2001. A major factor is the supplementary government budget passed in fall 2000, which boosted public investment. On the other hand, the rise in private, non-residential investment, which sustained growth in the October-December quarter, was relatively small. As a result of the slowdown in the world economy, growth in exports has stagnated, and the contribution of the external sector is expected to be negative. The employment and income environments are severe, but personal consumption is expected to remain relatively firm. The upward trend in new automobile registrations is expected to continue, and, prior to the enactment of the electrical appliance recycling law, sales of four types of appliances, to which this new law will be applicable, are expanding. Also, as a result of the weakening of the impact of the tax reduction for residential loan payments, private residential investment is expected to slow down. We are forecasting that real GDP growth will exceed the government's outlook (1.2%) and rise to 1.4%.
We are forecasting that real GDP in fiscal 2001 will fall below the government's estimate of 1.7% and will amount to 1.0%. The economy will remain flat in the first half of fiscal 2001. In the corporate sector, stagnation will continue. Exports will decline because of the deceleration in the world economy, leading to a drop in industrial production. This will lead to a decrease in capital investment accompanied by deterioration in corporate profitability. This stagnation in the corporate sector will most likely have a negative impact on the household sector. Corporations will be more strongly motivated to reduce personnel costs, and wages are likely to show slower growth. As the employment environment grows more severe once again, there is concern that consumer confidence may wane. In addition, private residential investment will probably trend downward as condominium construction fails to gather momentum.
The economy will begin to recover again in the second half of fiscal 2001. The reason for this will be the commencement of a recovery in the world economy. Especially in the United States, interest rate reductions will take effect and allow the economy to bounce back. The recovery in external demand will expand production, and inventory adjustments will be completing. Moreover, the increase in production will bring recovery in corporate profitability, and capital investment--which will have weakened in the first half of fiscal 2001--will begin to expand again. The improvement in corporate profitability will have a positive impact on individual incomes. But companies are likely to maintain quite strong restraints on wages so that the recovery will be limited. For this reason, personal consumption will remain firm; however, a robust recovery cannot be expected. Instead, consumption will remain, at best, a support for the economy. Even though the economy will begin to improve, the recovery in demand will be weak, and deflationary pressures will continue throughout the fiscal year.
Full Text
![[Back]](../../images/back.gif){kind=small}