Editorial: With a projected 4% rise in GDP, time to firm up domestic-led economic growth

August 17 , 2017

The GDP results for the April-June 2017 quarter recently released by the Cabinet Office showed significant improvement, greatly exceeding market expectations. If the economy continues to grow at this pace, the annualized GDP rate is projected to rise by 4% this year.

The last time such a high projection was made was during the January-March 2015 quarter, when there was a projected rise of 4.8%. This quarter’s growth can be attributed to the steady expansion of consumer spending—more spent in dining out, leisure activities, and buying or replacing cars and such white goods as air conditioners—as well as private capital spending.

The 2.4% rise in capital spending can be attributed to facilities being upgraded and labor saving investments being made in response to a shortfall in workers.

In addition, Komeito’s budgetary proposals—which were adopted widely in the second supplementary budget for fiscal 2016—are now going into effect and public investment is starting to make its impact.

The nominal growth rate, a better indicator of the actual societal experience of economic growth, also increased by a slight margin, showing that the Japanese economy is steadily but surely freeing itself from its deflationary vice.

It has been awhile since both components of domestic-led demand—consumer spending and private capital expenditure—have paved the way to an economic recovery. Moving forward, how can we can maintain and fortify this present structure?

First, we must raise wages. Last month, the Health, Labor and Welfare Ministry’s Central Minimum Wages Council decided to raise the minimum wage by a national average of 25 yen for fiscal 2017. This margin of increase, on par with the wage hike last year, marks two consecutive years of the largest-ever increases in Japanese history. With wage increases remaining high, we can expect improved conditions for non-regular workers who comprise 40% of the total labor force, which will in turn benefit household budgets. We count on businesses to steadily increase wages to make this a reality.

On the other hand, if this long spell of rain continues unabated, we can expect a rise in the total cost of vegetables and other crops. We need to closely monitor the damage caused to agricultural produce to ensure that rising costs don’t put a damper on consumer spending.

Furthermore, international competition is intensifying in the fields of artificial intelligence and other new technologies that are referred to as the fourth industrial revolution. We hope Japanese businesses will proactively invest in this sector to capture the high ground. The government should also make bold attempts to generate growth strategies and structural reforms that cultivate new industries and create an environment where businesses can more easily enter emerging fields of enterprise.