∩(゜Д゜)∩英字新聞
Looming economic crisis needs flexible response
The current economic recovery, a record for the longest boom since the end of World War II, appears to be at a crossroads as it threatens to enter a recessionary phase.
In its monthly report for June, the government downgraded its overall assessment of the nation's economy. While maintaining its view that the economic recovery appears to be pausing, it also added that trends indicating weakness have been seen in some sectors recently.
The government's analysis indicates that it is increasingly questionable whether the economy, which has become shaky after months of leveling off, will be able to return to prosperity. The government and the Bank of Japan must be vigilant against an economic slowdown.
In mid-June, finance ministers from the Group of Eight countries warned in a joint statement that the future of the global economy is uncertain, adding elevated commodities prices, especially of crude oil and food, "pose a serious challenge to stable growth worldwide."
The global economy is facing a risk of economic downturn and inflation at the same time.
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Rising costs, falling profits
Japan is no exception. Rising costs for raw materials, such as crude oil, are eating into corporate profits, which act as an engine of the Japanese economy. Even if raw material costs rise, businesses are unable to easily hike retail prices for fear of a possible drop in sales.
The monthly report also noted signs of exports weakening. Exports to other Asian countries are peaking after months of increasing rapidly. This has been combined with an increase in stocks of semiconductors and other electronic components, a key factor behind a trend toward decreased domestic production. Due to the influence of rising prices for gasoline and food, personal consumption has begun to decline. Sales at supermarkets and department stores have dropped sharply in the past few months.
Gross domestic product grew at an annual rate of 4 percent in real terms in the three months through March. But many private sector economists predict that GDP growth in the April-June quarter will be around zero or even fall below zero.
Another factor is the growing fear of a simultaneous economic slowdown and rise in prices.
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Handcuffed on monetary policy
There is little room for relaxing monetary policy as a means of bolstering the economy, given the low-interest-rate policy already in place. In addition, the nation has a huge fiscal deficit to deal with, making it difficult to increase public spending on economic pump-priming measures. If the price increase spreads further, it will become even more difficult for the government to deal with the situation.
Discord among Japan, Europe and the United States over policy coordination also could become a destabilizing factor for the global economy. The European Central Bank is positive about a rise in interest rates to avoid inflation. But the United States is finding it difficult to raise interest rates due to its fear of a financial system crash caused by the subprime mortgage crisis.
If they fail to take concerted action, there is no denying that the disharmony could invite worldwide market trouble.
Given the unpredictable economic situation, it is important to react flexibly and come out with measures to mitigate the impact of an economic downturn.
