[Asia Economy Reporter Lee Ji-eun] Despite three consecutive quarters of domestic gross domestic product (GDP) growth, dark clouds are looming over the Japanese economy. This is because there are predictions that the current account balance will run a deficit for the first time in 42 years this year, and there is also a growing possibility that private consumption will stagnate due to rising inflation. Accordingly, some argue that Japan, which has a high dependence on overseas raw materials, needs to increase investment in high value-added industries to avoid being swayed by external risk factors.
According to the Nihon Keizai Shimbun on the 16th, the Japanese Cabinet Office announced the day before that the real GDP excluding the impact of price changes in the second quarter increased by 0.5% compared to the previous quarter. Assuming this trend continues for one year, the annualized growth rate was calculated at 2.2%. Japan's GDP growth rate has maintained growth for three consecutive quarters on an annualized basis since the fourth quarter of last year (4%). The annualized GDP amount reached 542.1 trillion yen (approximately 5346 trillion won), surpassing the 540.8 trillion yen recorded in the fourth quarter of 2019 before the spread of COVID-19.
The second-quarter GDP growth was largely influenced by the revival of private consumption. In March, the Japanese government fully lifted the "Priority Measures to Prevent Spread," which had been implemented to prevent the spread of COVID-19, leading to a significant increase in consumption related to services such as dining out and accommodation. Personal consumption, which accounts for more than half of Japan's GDP, increased by 1.1% compared to the previous quarter.
On the other hand, the economic growth of major countries such as the United States, China, and the United Kingdom is struggling. The U.S. recorded a second-quarter GDP growth rate of -0.9% annualized, marking two consecutive quarters of negative growth. In China, the industrial production growth rate, a leading indicator of GDP, increased by 3.8% month-on-month, falling short of the market expectation of 4.6%. The Bank of England (BOE), the central bank of the UK, predicted that the UK economy would continue to experience negative growth until the second half of next year.
Accordingly, Nihon Keizai Shimbun forecasted that due to various uncertainties stemming from the global economic contraction, export conditions are deteriorating, and Japan's economic growth rate may stagnate in the future.
In fact, Japan's current account surplus in the first half of this year was 3.0557 trillion yen, the smallest in eight years since 2014, due to the sharp rise in prices of imported crude oil and natural gas. Japanese economic experts have also predicted that the current account balance could record a deficit for the first time in 42 years since 1980.
The rise in raw material prices is also driving a decline in Japan's gross domestic income (GDI). According to the second-quarter statistics announced by the Cabinet Office the day before, Japan's trade loss due to worsening terms of trade (the quantity of imports that can be purchased with one unit of exports) increased by 4.5664 trillion yen compared to the previous quarter, marking the largest amount since 1994. A large trade loss means that income produced domestically is flowing overseas to that extent. The larger the trade loss, the less the public can fully enjoy the income growth effect even if domestic production and exports are active.
Nihon Keizai Shimbun explained, "If companies pass all the costs of imports onto selling prices, the burden on households will increase. On the other hand, if they cannot raise selling prices, the burden on companies increases, preventing wage increases, which again leads to a burden on households and can damage the driving force of economic growth."
It also pointed out that China's "Zero COVID" policy, which blocks borders to prevent the spread of COVID-19, could be a major factor hindering economic growth in the second half of the year. Although China lifted the Shanghai lockdown in June, factory operations were halted and truck transportation was disrupted, causing ongoing global supply chain confusion. According to Nihon Keizai Shimbun, the current capital investment rate of Japanese companies has decreased by 2.6% compared to before the spread of COVID-19 due to semiconductor shortages and global supply chain disruptions.
Nihon Keizai Shimbun emphasized that Japan needs a structural transformation of its industry to achieve sustainable economic growth in the future. While temporary policies such as government gasoline subsidies may reduce trade losses in the short term, they cannot build resilience against the global economic crisis. Nihon Keizai Shimbun stressed, "Since Japan has a high proportion of raw material imports, reforms are needed to develop and increase investment in industries with high added value or export competitiveness."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
