FT: Abenomics’ direction uncertain after GDP shock


So where does “Abenomics” go from here?

Less than two years ago, Shinzo Abe’s big idea was to boost Japan’s growth rate to about 3 per cent a year on a nominal basis and 2 per cent on a real basis, and then to use that momentum to repair the government’s stretched finances. That was the main objective of the incoming prime minister’s “three arrows” of flexible fiscal policy, loose monetary policy and a host of longer-term reforms.

But Monday’s surprise data on third-quarter gross domestic product showed just how ambitious those targets were. Far from expanding at an annualised rate of about 2 per cent during the period – as almost every private-sector economist assumed it would – real GDP shrunk 1.6 per cent, as a tepid recovery in consumption, exports and public spending following April’s tax increase was offset by weak capital spending and big cuts in inventories.

Analysts said the numbers – on the heels of a 7.3 per cent contraction in the second quarter – seal the deal for a deferral of the second stage of the consumption tax increase, scheduled for October 2015. If Mr Abe really wants to keep his vision intact, said Etsuro Honda, a close adviser, then the emphasis must shift to ways to lift growth.

financial times online

Read the full article on the Financial Times online by clicking here.

Leave a Reply