Lack of confidence in Japanese government spending to boost economy growth

In July, Japan’s consumer confidence index fell to 41.3 after a five month high in June. The consensus amongst analysts was that the figure would rise in July. Among the various indicators used to compile the overall index, willingness to buy durable goods (of significance to the furniture sector) worsened and the employment prospect index also weakened. With the impact of the two declines, it the overall confidence level was brought down.

Japan’s economy nearly stalled in the second quarter amid falling exports and weak corporate investment, depicting the nation’s dependence on government stimulus for growth. Japan’s economy grew at an annualised 0.2% in the second quarter of 2016 well below the 2% achieved in the first quarter. Analysts were quick to point out that the number would have been in negative territory were it not for the second quarter rise in public investment.

In early August, the government approved a massive stimulus package so government spending should boost growth in the second half of this year. It came as a disappointment to the government that private sector investment continues to decline and exports fell.

Consumer spending makes up roughly 60% of Japan’s gross domestic product and the boost in spending is a must to turn the economy around. But consumers are holding back as they are unsure of prospects due to real prospect of growth in wages. The greatest challenge is to reverse the continuing decline in consumer prices.

Source: ITTO