EDITORIAL: GDP growth of 4.8 percent

The domestic economy grew in the July-September quarter at a much faster rate than private-sector forecasts. On an annualized basis, real gross domestic product increased by 4.8 percent, posting growth for the second consecutive quarter.

But nominal GDP, an indicator which more accurately reflects people's sentiment about economic conditions, contracted by 0.3 percent. And the overall state of the economy is still far from what can be described as in the recovery phase.

Yet, more encouraging signs have emerged. One of them is that corporate investment in plant and equipment took an upturn in the quarter after a period of continued contraction. As a result, domestic demand contributed to economic growth. These were the first such signs of improvement in six quarters.

Private consumption has been stimulated by a series of government stimulus measures, such as the eco-point program to promote sales of energy-saving consumer electronic appliances. Exports to China and North America are also rebounding. In response to the improved conditions, automobile, electronic and other key industries have started investing in new environment-related equipment.

Coordinated economic policy efforts among major economies and Japan's own stimulus measures are finally beginning to goose demand in the private sector.

On the other hand, there are troubling signs of persistent deflationary pressure. A general decline in prices is threatening to throw the economy into a downward spiral. The deflationary trend is affecting employment and keeping the jobless rate at high levels. Winter bonuses are expected to be cut sharply, and the outlook for consumer spending offers no reason for optimism.

Once the government's stimulus measures have run their course, the economy could start shrinking again, falling into a second bottom. From this point of view, the government still has a role to play in stoking economic growth.

But the administration of Prime Minister Yukio Hatoyama, which has pledged to place priority on protecting living standards, should not resort to the kind of giveaway and pork-barrel spending that so often characterized past policy efforts under the government led by the Liberal Democratic Party. In particular, the Hatoyama administration must avoid trying to keep demand going with haphazard public works spending.

The government needs to support job security and consumer spending by strengthening the social safety net while expanding private-sector demand, such as business investment, an area that is showing promising signs of recovery.

The government needs to focus on effective pump-priming measures to put the economy on a path of self-sustaining growth driven by the private sector.

From this vantage point, it is important for the Hatoyama administration to craft a second supplementary budget for the current fiscal year and the regular budget for fiscal 2010 as soon as possible to send out a clear message that it is trying to ensure sustained expansion of domestic demand.

Hatoyama has vowed to shift the focus of economic policy "from concrete to people." He should demonstrate his commitment to promoting the well-being of the people through the process of developing these spending plans. Specifically, he should announce policy incentives for private-sector investment in areas expected to create new growth industries, such as health-care services, welfare and the environment.

These areas also have a huge potential for creating new jobs. But few new businesses have emerged so far in these sectors. The government should take steps to awaken hopes among the people that fiscal and monetary policies and regulatory reform will lead to the creation of new jobs.

With the second extra budget, the government should turn its economic policy in that direction and accelerate it with the state budget for next fiscal year. That will be the most effective way to revitalize the economy.

--The Asahi Shimbun, Nov. 17(IHT/Asahi: November 18,2009)