Monthly Report of Prospects for Japan's Economy

Transcription

1 Monthly Report of Prospects for Japan's Economy September 1 Macro Economic Research Centre Economics Department This report is the English version of the August 1 issue of the original Japanese version.

2 The general situation of Japan s economy The recovery trend has taken a breather Figure 1-1 Economic Activity Figure 1- The Corporate Sector Figure 1-3 Overseas Demand The economic recovery trend has taken a breather, as exports have weakened. Industrial production increased for the first time in 3 months. The inventory ratio rose in steel and transport equipment. Exports to the US, which had supported exports as a whole, declined. Imports continue to be on an increasing trend. (CY5=1) (CY5=1) (CY5=1) Index of business 15 conditions (Composite Industrial inventory index, Coincident index) ratio index Real exports Index of business conditions (Composite 11 index, Leading index) Real imports Industrial production index Source: The Cabinet Office. Source: The Ministry of Economy, Trade and Industry. Source: The Bank of Japan. Figure 1-4 Employment and Income Figure 1-5 The Household Sector Figure 1-6 Housing Investment (%) The unemployment rate fell due to the increase in jobholders. Earnings declined especially in bonuses. Unemployment rate (left scale) Total cash earnings (y/y % change, right scale) (%) Source: The Ministry of Internal Affairs and Communications, The Ministry of Health, Labour and Welfare. * The shaded area indicates the phase of recession Firm as a whole, partly supported by the government measures for the purchase of eco-cars. (CY5=1) 18 Real private consumption integrated estimates Real private consumption expenditure index Source: The Japan Research Institute, Ltd. based on the data of The Cabinet Office, The Ministry of Internal Affairs and Communications Housing starts are at the lowest level in 5 months. Condominium sales have weakened. (1, houses) Housing starts (annualised, left scale) Condominiums sold (Metropolitan area, right scale, 6-month moving average) (1,1 units) Source: The Ministry of Land, Infrastructure and Transport, Real Estate Economic Institute Co., Ltd.. Monthly Report of Prospects for Japan's Economy September

3 Indices such as business conditions and overseas demand have weakened In Japan's economy, a weakening trend has been seen in some statistics. The Economy Watchers Survey shows that the diffusion indices (DIs) for current economic conditions declined for three months running both in household activity-related and corporate activity-related industries. Real exports also fell for two months in a row. Viewed by region, exports to China were flat, and exports to European countries continue to be on a decreasing trend. In addition, exports to the US, which had supported exports as a whole, dropped for the second consecutive month. There is anxiety that overseas demand could weaken further. Industrial production in June increased by.4 per cent over the previous month, the first rise in three months. Viewed by industry, production of chemicals and electronic parts and devices rose. Looking ahead, it is expected that industrial production will continue to be on a recovery trend, due to the materialisation in earnest of reconstruction demand from the Great East Japan Earthquake and tsunami disaster in March 11. However, the pace of recovery will remain moderate, because the production of automobiles is predicted to decline, reflecting the end of subsidies for the purchase of eco-cars which is expected this summer. Furthermore, if a deceleration in overseas economies intensifies, production activity could cool through a stagnation in exports. Figure -1 The Diffusion Indices for Current Economic Conditions in the Economy Watchers Survey 家計動向関連 Household activity-related 55 企業動向関連 Corporate activity-related Source: The Cabinet Office. Figure - Real Exports by Region <seasonally adjusted> 世界 World (CY7=1) 14 中国 China + 香港 + HK <4> 中国 China + 香港除くアジア + Asia excluding <31> HK <31> 米国 US <16> EU<11> Source: The Japan Research Institute, Ltd. based on the data of The Ministry of Finance, The Bank of Japan. Note: Figures in the angle brackets show the shares in FY Figure -3 Industrial Production Index <seasonally adjusted> (CY5=1) 1 Industrial production index (left scale) 95 ~~~~~~ % change from the previous month by industry (right scale) ~~~~~~ 輸送機械 Transport equipment 素材 Basic materials 電子 デバイス Electronic parts and devices 電気機械 Electrical machinery その他 Others 前月比 m / m %( change 右目盛 ) Source: The Ministry of Economy, Trade and Industry. 8 (%) 4 Monthly Report of Prospects for Japan's Economy September

4 Government measures such as reconstruction have boosted domestic economic activity The driving force for the economy has been domestic demand, boosted by government measures. Restoration and reconstruction activity in the disaster-hit areas has been livening up since the start of the year. This trend is shown in the fact that the index of supply for public investment in The Indices of All Industry Supply, which show which sort of demand is met by the supply of a certain item among goods and services in various industries, continues to be on an increasing trend, reflecting the increase in the supply of buildings in the construction industry. Private consumption expenditure continues its solid trend as a whole, although the extent of improvement varies with products for sale. While automobiles have been doing well, supported by the government measures such as subsidies and tax cuts for the purchase of eco-cars, household electrical appliances have been weakening, led by stagnant sales of TV sets. As for environments surrounding income, which is the source of private consumption expenditure, total cash earnings declined by.6 per cent year-on-year in June, for the second successive month. The main reason for the decline is the decrease in bonuses, reflecting the worsening of corporate profits last year. On the other hand, contractual cash earnings stayed positive year-on-year. Figure 3-1 Indices of All Industry Supply and Public Investment on a GDP Basis <seasonally adjusted> (CY5=1) (Trillion yen) 9 85 Indices of all industry supply 全産業供給指数 ( 公共投資 左目盛 ) (public investment, left scale) Nominal public investment GDP on a 名目公共投資 GDP basis (right ( 右目盛 scale) ) Source: The Ministry of Economy, Trade and Industry, The Cabinet Office. Figure 3- Retail Sales Index <seasonally adjusted> 小売業計 Total retail sales (CY5=1) 自動車 Motor vehicles 機械器具 Household ( appliances 家電など ) Source: The Ministry of Economy, Trade and Industry. Figure 3-3 Total Cash Earnings <year-on-year % change> (%) 現金給与総額 Total cash earnings. 定期給与 Contractual cash earnings 所定内給与 Scheduled cash earnings Source: The Ministry of Health, Labour and Welfare. Monthly Report of Prospects for Japan's Economy September 1-3 -

5 The downward pressure of overseas demand would be limited It is expected that the US economy will continue its moderate recovery trend, as the corporate sector continues to be firm. Also, it is likely that the Chinese economy will gain its economic momentum again gradually mainly in domestic demand, supported by monetary easing and budgetary measures. As for European economies as a whole, it is projected that the real GDP change rate will continue in negative figures, due to austerity budgets, worsening employment and income environments, and so on. However, the direct negative effect of the deterioration in European economies on Japan's economy would be limited, because the share of exports to the EU in Japan's total exports is smaller than that of exports to the US or China on a value basis. Also, the indirect downward pressure of the slowdown in China's exports to the EU, which have a large share in China's total exports, on Japan's exports to China would be limited. This is because a considerable deceleration in the Chinese economy will be able to be avoided as long as European economies do not fall into a deep recession. Therefore, judging from the above forecasts, the negative effect of the slowdown in overseas economies on Japan's exports and production is expected to be limited. However, fears stemming from the European debt crisis persist, such as the uncertainty as to the bail-out programmes in Greece and the anxiety about the financial system in Spain. If the crisis deteriorates significantly, its negative effect on Japan's economy will not be small. Figure 4-1 Japan's Exports by Destination and Leading Economic Indicators 景気先行指数 Leading economic ( 右目盛 indicator ) (right scale) (CY7=1) 実質輸出 Japan's real ( 左目盛 exports ) by destination 14 1 (left scale) China the US EU month advance -month advance 3-month advance Source: The Japan Research Institute, Ltd. based on the data of The Ministry of Finance, The Bank of Japan, OECD. Figure 4- China's CPI and Reserve Requirements on Deposits (%) 1 CPI (year-on-year % 8 8 change, left scale) (%) 4 Reserve requirements on deposits (at the end of month, right scale) Source: The National Bureau of Statistics of China, The People's Bank of China China's exports to the EU (Y/Y %) Figure 4-3 GDP Growth Rate in the Eurozone and China's Exports to the EU <year-on-year % change> Forecast of GDP growth rate in the eurozone (CY1:+.4%) Nominal GDP growth rate in the eurozone(y/y %) Source: Eurostat, Statistics of China Customs. Monthly Report of Prospects for Japan's Economy September 1

6 Reconstruction demand will continue to boost the economy through FY13 Thus far, the government has budgeted a total of about 18.5 trillion yen related to restoration and reconstruction from the disaster, about 11.5 trillion yen of which is estimated to be counted as the amount which can boost the real GDP growth rate directly as "reconstruction demand". Economic activity for restoration and reconstruction in the disaster-hit areas has been materialising in earnest since the start of this year, due to the effects of the related budgets. As the pace of increase in the value of contracts for public works, which is considered to be a leading indicator for public investment, has been accelerating recently, it is expected that public investment on a GDP basis will continue to increase from the April- June period onwards. Taking the above mentioned situation into consideration, restoration and reconstruction demand such as public demand and housing investment in the future was estimated, on the basis of the reconstruction pattern in the Great Hanshin Awaji Earthquake disaster in This estimate based on the JRI macro model simulation shows that the materialisation of reconstruction demand in the budgets will raise the real GDP growth rate by 1.9 percentage points in FY1, a considerable effect, and by.7 percentage points in FY13. Government consumption expenditure Figure 5-1 Estimate of Reconstruction Demand The first supplementary budget in FY11 The second supplementary budget in FY11 The third supplementary budget in FY11 The fourth supplementary budget in FY11 (Trillion yen) The draft budget for FY Note.7. Total Figure 5- The Value of Contracts for Public Works and Public Investment on a GDP Basis <annualised, seasonally adjusted> (Trillion yen) 1 Nominal public investment GDP (on a 名目公共投資 GDP basis, right ( 右目盛 scale) ) The value of contracts for 公共工事請負金額 public works (1Q advance, (Trillion yen) left scale) 4 Figure 5-3 Estimate on Boosting Effect of Reconstruction Demand on Real GDP Growth Rate (% points) Public investment Note Grants, reserves, etc Note Total Note Source: The Japan Research Institute, Ltd. based on the data of The Ministry of Finance. Note: The fourth supplementary budget is not related to reconstruction (Y/Q) Source: The Japan Research Institute, Ltd. based on the data of The Cabinet Office, East Japan Construction Surety Co., Ltd., and so on (Y/Q) 公共投資 Public investment 政府消費 Government consumption expenditure 住宅投資 Housing investment 設備投資 Business fixed investment 個人消費 Private consumption expenditure 実質 Real GDP GDP 1 13 (FY) Source: Macro model simulation by The Japan Research Institute, Ltd. based on the data of The Cabinet Office, The Ministry of Land, Infrastructure and Transport. Monthly Report of Prospects for Japan's Economy September 1-5 -

7 An insufficiency of workers for public works in the stricken areas could be a bottleneck On the other hand, the pace of advance in restoration and reconstruction activity in the disaster stricken areas is, in part, slower than previously had been expected. Especially, it is noticeable that rebuilding of houses lags behind in Fukushima and Iwate Prefectures. In addition, an insufficiency of workers for public works and a mismatch between jobs offered and jobs sought in the disaster stricken areas have been problems. For example, in Miyagi Prefecture, while construction-related workers have become in short supply rapidly, the number of jobseekers in food manufacturing including fishery-related mainly in coastal areas has increased. It is worrisome that these situations could be a bottleneck to reconstruction and delay the materialisation of reconstruction demand in earnest. Based on the press release of The Reconstruction Agency, only about 9 trillion yen, about 6 per cent of the total amount of around 15 trillion yen of the first to third supplementary budgets in FY11 related to reconstruction, has been implemented through the end of March 1, a moderate pace of implementation. Figure 6-1 Progress in Reconstruction in Housing in the Three Stricken Prefectures (1, houses) Housing starts (the sum total over the average in FY1, left scale) 福島県 Fukushima Prefecture 宮城県 Miyagi Prefecture 岩手県 Iwate Prefecture /3 1/3 The damage to houses Partially destroyed Completely destroyed Source: Prefectures of Iwate, Miyagi and Fukushima, The National Police Agency. (1, houses) 5 Iwate Miyagi Fukushima The number of job offers (1, persons) Figure 6- The Number of Job Offers and Job Seekers by Occupation in Miyagi Prefecture Shortage of workers workers Construction work of the framework of buildings Engineering work Construction work Construction technology Food manufacturing (Ishinomaki) Food manufacturing (Kesennuma) The number of job seekers (1, persons) Source: Miyagi Prefecture. Note: Each marker the inside of which is painted black indicates the average in the 6 months before the disaster, the inside of which is painted white the average in the 6 months after the disaster, and the other the average in the latest 6 months Construction and engineering work Excess of Food manufacturing Figure 6-3 Implementation of the Budget Related to Reconstruction by Ministry and Agency The Ministry of Land, Infrastructure and Transport The Ministry of Economy, Trade and Industry The Ministry of Agriculture, Forestry and Fisheries The Reconstruction Agency The Ministry of the Environment The total (scale below) (Trillion yen) (Trillion yen) 支出済歳出額 Already implemented 翌年度繰越額 Carried forward to the next fiscal year 不要額 Not needed due to overestimate Source: The Japan Research Institute, Ltd. based on the data of The Reconstruction Agency. Monthly Report of Prospects for Japan's Economy September 1

8 Private consumption expenditure could weaken temporarily this autumn It is likely that the budget for subsidies for the purchase of eco-cars, which has supported private consumption expenditure thus far, will have run out this August, if the latest pace of automobile sales has continued. After the end of the subsidy programme, automobile sales are predicted to decline significantly in the same way as the last time such a subsidy programme was carried out. It is estimated that automobile sales will decrease to the 3 million mark on an annualised basis in this October-December period, based on the demand forecast of The Japan Automobile Manufacturers Association, and on the basis of the sales pattern around the end of the last subsidy programme. Accordingly, it is projected that private consumption expenditure will decline over the previous quarter in the October-December period. However, although it will not be so strong, it is unlikely that private consumption expenditure will falter considerably triggered by the end of the subsidy programme, because environments surrounding private consumption expenditure are not necessarily bad. For example, total cash earnings are expected to improve moderately, reflecting a moderate increasing trend in industrial production. Also, in the diffusion index which shows consumers' attitude towards services expenditure, cautiousness tends to be resolved on the whole. Figure 7-1 Estimate on Application Amount and Remaining Budget Amount of Subsidies for Eco-cars (1 million yen) (1 billion yen) Average application amount (per day, left scale) Estimate on remaining budget amount of subsidies for eco-cars (right scale) 6/middle 7/first 1/1 4 7 (Y/M/Ten days) Source: The Japan Research Institute, Ltd. based on the data of Next Generation Vehicle Promotion Center. 3 1 Figure 7- Estimate on Automobile Sales <annualised, seasonally adjusted> (Million cars) The decline after the Lehman shock The upswing due to tax cuts and subsidies for eco-cars The decline after the quake disaster Estimate (Y/Q) Source: The Japan Research Institute, Ltd. based on the data of The Japan Automobile Manufacturers Association Inc., Japan Automobile Dealers Association, Japan Mini Vehicles Association, and so on Figure 7-3 Industrial Production and Scheduled Cash Earnings <year-on-year % change> (%) (%) 4 Industrial production (left scale). 3 Forecast 1.5 Scheduled cash earnings (right scale) Source: The Ministry of Economy, Trade and Industry, The Ministry of Health, Labour and Welfare Monthly Report of Prospects for Japan's Economy September

9 Rushed demand expected in FY13 before the rise in the consumption tax rate The economic activity in the second half of FY13 to March 14 will have a considerable upswing due to rushed demand, if the consumption tax rate is raised from 5 per cent to 8 per cent in April 14. In the past, private consumption expenditure and housing starts increased significantly in FY1996, when the consumption tax rate was raised in FY1997. On the other hand, the economic activity in FY14, when the rate is raised, will suffer a reactionary decline. Further, the rise in prices after the consumption tax rise will lower the growth rate of private consumption expenditure through a reduction in the purchasing power of households. Accordingly, the real GDP growth rate in FY14 is estimated to be lower by.9 percentage points, based on the JRI macro model simulation. Moreover, it is highly likely that the financial burden on households will rise because the government is expected to have to increase revenues for the reconstruction from the disaster as well as the rebuilding of public finance. As the period during which the income tax is raised for reconstruction was decided to be 5 years, the financial burden on households per year will be light. However, the abolition of tax exemptions for dependents, and a rise in pension premiums will be a heavy financial burden on households. As a result, net benefit to households is expected to decrease by about 1 trillion yen from the previous fiscal year in FY1, and about.5 trillion yen in FY13. The decrease in net benefit is predicted to be a downswing factor to private consumption expenditure through a decline in the disposable income of households. Figure 8-1 Rushed Demand and Reactionary Fall due to Consumption Tax Rise (%) その他 Others 耐久財 Durable goods Housing starts (right scale) The rise in the consumption tax rate 3% 5% Domestic final consumption expenditure of households (left scale) Source: The Cabinet Office, The Ministry of Land, Infrastructure and Transport. (Y/Q) (%) Figure 8- Estimate on the Effect of Consumption Tax Rise in FY 14 on Demand in FY14 <5% 8% in April 14> (% points) Real GDP -.9 Real private consumption expenditure Housing starts -. CPI +. Source: Macro model simulation by The Japan Research Institute, Ltd. based on the data of The Cabinet Office (Trillion yen) Figure 8-3 Financial Burden on and Benefit to Households (FY) 子ども手当 Child allowances Free of charge 高校授業料 public high schools House-to-house Cuts in tax exemptions 農業戸別補償 compensation to farmers 扶養控除 for dependents Tax rises for 復興増税 reconstruction ネット受取 Net receipts Source: The Japan Research Institute. Rises in pension 年金保険料 premiums Monthly Report of Prospects for Japan's Economy September 1

10 Environments surrounding enterprises continue to be harsh Environments surrounding Japanese enterprises seem to continue to be harsh. As for continued severe environments surrounding corporate profits, it can be pointed out that the continued strong yen is one of the backgrounds. The recent exchange rate of the yen against the US dollar is at almost the same elevated level as those of assumed exchange rates by Japanese enterprises. Also, the exchange rate of the yen against the euro has risen to the level over those of assumed exchange rates. Both exchange rates tend to be rising, reflecting deepened anxiety over the European debt crisis, heightened expectations for a further monetary easing in the US, and so on. It is considered that the continued strong yen would reduce corporate profits in total ultimately through a subsequent decrease in export quantity and negative ripple effects between industries, although some industries do have exchange-margin profits due to the price effect. Based on the JRI macro model simulation, if the exchange rates of the yen are 7 yen / US dollar and 9 yen / euro, it is calculated that corporate profits of Japanese non-financial enterprises would decline by 5.1 percentage points in the first year and by 7.4 percentage points in the second year, and the real GDP growth rate would be lower by.7 percentage points in the first year and by 1. percentage points in the second year. Figure 9-1 Assumed Exchange Rates of the Yen by Japanese Enterprises 想定為替レート Assumed exchange rates 実勢レート Actual exchange (7 月 ) rates (July) Yen / US dollar (left scale) Yen / Euro (right scale) Yen / Euro Yen / US dollar Figure 9- Estimate on the Effect of the Strong Yen on the Economy <the effect on corporate profits> <the effect on the real GDP growth rate> (% points) (% points) 95 yen 9 yen 85 yen Yen / Euro Yen / US dollar 95 yen 9 yen 85 yen 75 yen yen yen yen yen yen Iron and steel General-purpose machinery Production machinery Business oriented machinery Electrical machinery Motor vehicles Source: Macro model simulation by The Japan Research Institute, Ltd. based on the data of The Ministry of Finance, The Cabinet Office..Note: 1. The figure in the left side indicates the effect in the first year, and the figure in the right side the second year.. The effects are calculated as the differences from the figures in the base line scenario of 8 yen / US dollar, and 14 yen / euro. 3. Corporate profits are for nonfinancials. Source: The Bank of Japan, Nikkei QUICK. Monthly Report of Prospects for Japan's Economy September 1-9 -

11 Prospects for Japan's economy - Projected real GDP change;.% in FY1 and 1.5% in FY13 (1) In the first half of FY1 ending in September this year, it is predicted that favourable factors such as a rise in public demand and housing investment reflecting a materialising in earnest of demand stemming from reconstruction, and an increase in private consumption expenditure supported by the government measures for the purchase of eco-cars, will have contributed to boosting economic activity. However, it is very likely that the budget of subsidies for the purchase of eco-cars will have run out by this summer. As a result, it is expected that automobile sales from this autumn will decline significantly. Accordingly, the real GDP growth rate in the October-December period in the second half of FY1 is estimated to be much lower due to the decrease in private consumption expenditure. () It is predicted that the lower real GDP growth rate will continue on a quarterly basis through the first half of FY13, under the circumstances that overseas demand will not be able to be counted as a strong driving force for the economy, that the autonomous power of economic recovery will continue to be weak, and that the boosting effect of reconstruction demand on the economy will peter out. On the other hand, in the second half of FY13 to March 14, it is projected that a rushed increase in demand for housing and durable consumer goods will boost the quarterly real GDP growth rate considerably, before a rise in the consumption tax rate from 5 to 8 per cent which is expected in April 14. (3) During the projected period, it should be noted that there are downside risks to the economy, such as a worsening of the European debt crisis, a further slowdown in emerging economies, an advance in the strong yen, the tighter supply-demand situation in electric power, and so on. (4) As for the Consumer Price Index excluding fresh food (the core CPI), the deflationary pressure will persist, as shown in the declining trend in prices of household appliances and furniture, although a rise in electric power rates is expected to push up the index. Monthly Report of Prospects for Japan's Economy September 1-1 -

12 Figure 11 Projections for GDP Growth and Main Indicators of Japan ( as of August 13, 1 ) (seasonally adjusted, annualised % changes from the previous quarter) CY1 CY13 CY14 1~3 4~6 7~9 1~1 1~3 4~6 7~9 1~1 1~3 FY11 FY1 FY13 (Actual) (Projection) (Projection) (Projection) (Actual) (Projection) Real GDP Private Consumption Expenditure Housing Investment Business Fixed Investment Private Inventories (percentage points contribution) ( 1.4) (.) (.1) (.) (.1) (.1) (.) (.) (.) (.5) (.1) (.1) Government Consumption Expenditure Public Investment Net Exports (percentage points contribution) (.6) (.3) (.) (.) (.) (.) (.3) (.1) (.1) ( 1.) (.) (.) Exports of Goods and Services Imports of Goods and Services (% changes from the same quarter of the previous year) Real GDP Nominal GDP GDP deflator Consumer Price Index (excluding fresh food) Industrial Production Index Unemployment Rate (%) Current Account Balances (trillion JY) Share of Nominal GDP (%) Exchange Rates (JY/US$) Import Price of Crude Oil (US$/barrel) Source: The Cabinet Office; The Ministry of Internal Affairs and Communications; The Ministry of Economy, Trade and Industry; The Ministry of Finance. The projection figures are based on those of The Japan Research Institute, Ltd. Note 1: " " indicates minus. : It is assumed that the consumption tax rate will be raised from 5% to 8% in April 14. 3: The assumptions on the real GDP growth rates in CY1 in major overseas economies: the US.%, the euro area.5%, China 8.%. Monthly Report of Prospects for Japan's Economy September