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The economy is weakening, the government said Friday, downgrading its assessment for the third consecutive month mainly due to reduced production and worsening business sentiment.

The announcement came in the Cabinet Office’s monthly economic report for April. The March report said the “economic recovery appears to be pausing.”

The Cabinet Office dropped the word “recovery” from its economic assessment in the monthly report for the first time since the term appeared in July 1999.

The report also marks the first time since the July-September quarter of 1998 that the government has downgraded its economic assessment for three straight months.

Taro Aso, minister for economic and fiscal policy, told reporters the same day that the economy may enter recession in the future.

“We must maintain positive growth by compiling a supplementary budget if it is projected that economic growth for the current fiscal year will be negative,” he said.

It is too early, however, to determine if the economy has fallen back into recession, according to a Cabinet Office official in charge of the report.

Industrial production started to fall with exports faltering due to the U.S. economic slowdown, while the move by the corporate sector toward full recovery has become weaker in recent months amid a sharp deterioration in business sentiment, the April report says.

“It is true that the economy’s transition to a private sector demand-led, self-sustained recovery has been delayed,” the official reckoned.

The worsening of corporate sentiment, earnings and investment outlook for the October-March and April-September periods, seen in the Bank of Japan’s “tankan” quarterly survey report released April 2, was “much severer than expected,” he said.

“The shape of decline in business sentiment and production is similar to that seen in past recessions, but we’d better wait until actual results are reported on corporate capital investment and earnings in the January-March quarter,” he said.

If the current weakness continues and the expected fall in business investment and earnings in the first quarter of this year is confirmed, the government is likely to say the economy is in recession, he said.

In its March report, the government acknowledged for the first time since World Ward II that the economy is in the grip of deflation.

Mild deflation was the key theme in the March report, while this month’s report concentrates on clouds over the corporate sector.

The April report downgrades individual assessments in five categories — production, corporate earnings, business sentiment, employment and housing construction.

On employment, the report says the situation continues to be severe and notes a fall in job offers, whereas it said in March the increasing trend in job offers was stalling.

The report also notes an increase in personal consumption but plays it down, saying it was caused by temporary factors such as cold weather and buying of electric appliances ahead of a law that charges for recycling.

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