The Outlook for the Kansai Economy in Fiscal 2005
December 03, 2004
The recovery of the Kansai economy has been led by the corporate sector and driven by the two great engines of exports and demand for digital products. The recovery began in the manufacturing sector, but as the recovery has progressed, conditions have also started to improve in the non-manufacturing sector. There are also hopeful signs in the area of employment conditions, where the recovery had been lagging.
On the other hand, a number of causes for concern over the future of the Kansai economy have emerged in recent months, including (i) the accumulation of inventories, (ii) the outlook for overseas economies and (iii) the high price of crude oil and the appreciation of the yen. Taken individually, the impact of these factors on the Kansai economy is not severe, but, through slower export growth and an increasingly cautious approach to capital investment they are considered likely to lead to a slowdown in economic growth.
In fiscal 2005, the knock-on benefits of the recovery of the corporate sector to employment and incomes is likely to continue at a gentle pace, but as the rise in the tax and social security burden is likely to bring downward pressure to bear on disposable incomes and consumers are likely to become increasingly cautious, consumer spending is set to grow by only 0.4%, somewhat less than the real growth rate of 0.7% recorded in fiscal 2004.
Corporate profitability is still high, but as a number of causes for concern over the future have emerged in the conditions surrounding the Kansai economy and the Japanese economy at large and economic growth is expected to slow, companies are beginning to take a more cautious stance on the implementation of investment and the growth of capital investment is likely to slow. In fiscal 2005, it is likely to grow by 3.5% on a real basis.
Against the backdrop of a worldwide economic deceleration, exports are likely to slow. However, although the worldwide economic slump of 2001 led to a sharp fall in Japan's exports, this time, export growth is expected to continue. In fiscal 2005, exports are expected to grow by 6.1% on a real basis.
On a real basis, the growth of the Kansai economy is likely to slow to 1.2% in fiscal 2005 but this would still be a strong performance in comparison with the annual average of 0.2% recorded during the period fiscal 1991-2001, before the present recovery began.
A comparison of the economies of the Kansai and Chubu regions reveals that the Chubu region has the larger manufacturing sector while the Kansai region has the larger non-manufacturing sector, but the difference in strength of the manufacturing sectors is also having an effect on the non-manufacturing sectors and it is in the Chubu region that the non-manufacturing sector is growing faster. As long as the economic base that supports the demand for non-manufacturing industries within the region remains weak, it will not be possible to take full advantage of the potential of the non-manufacturing sector to generate employment. The Kansai region should position the regeneration of its manufacturing sector as the starting point for regional economic regeneration.
For more information on the content of this report, please contact
Kiyoshi Yoshimoto / Mizuho Nishiura
Kansai Economic Research Center Economics Department