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News Release

The Kansai Economy Waits for a Chance to Re-accelerate

June 23, 2005

Overview

The economy of the Kansai region is caught in a tug-of-war between "positive forces" working in favor of continued economic recovery stemming from the knock-on effects of the recovery that began in 2002 and "negative forces" with the potential to halt the recovery that have arisen since 2004.

The ability of exports to drive the Kansai economy forward is not as strong as it has been in the past, but on this occasion, in contrast to the situation in 2000 and 2001, when the growth of overseas economies slowed sharply and exports from the Kansai also saw a sharp fall, the trend of exports has not contributed to the deceleration of the economy.

From the second half of 2003 through the first half of 2004, the growth of production of electronic components and devices exceeded that of shipments with the result that inventories grew, but the problem is not so great as to bring pressure on the Kansai economy to make a harsher adjustment than the country as a whole.

Capital investment is unlikely to accelerate to the point that it is sufficient to drive the Kansai economy forward on its own but should hold firm and continue to be one of the "positive forces" working in favor of continued economic recovery.

Since the tide of economic recovery has begun, albeit slowly, to reach the consumer level, consumer spending is likely to move towards recovery. However, as the pace of recovery of incomes is likely to remain slow, consumer spending is unlikely to be a driving force and is likely to do little more than help to underpin the economy.

The Kansai economy has been on a plateau since about the spring of 2004. In most recession phases, once production has peaked it begins to decline, but on this occasion the trend of production appears to be very different. Once the necessary conditions - the completion of inventory adjustments in electronic components and devices and related fields and an improvement in export conditions due to a re-acceleration of overseas economies, etc. - are in place, the "positive forces" should gain strength and help the economy to move off its plateau, but this is likely to take another six months or so.

If the Kansai economy is to gain vigor not only in the short term but also in the medium-to-long term, a rise in the numbers of business establishments and number of employees will be required to support economic activity. Thanks to the recovery in business results, the relaxation of location system regulations and the expansion of measures to attract businesses into the region, the number of factories established in the Kansai is rising. Encouraging this trend to develop still further will help to ensure the revival of the Kansai economy.

For more information on the content of this report, please contact: Kiyoshi Yoshimoto the Japan Research Institute, Limited.

Tel: 06-6243-7380
E-mail:yoshimoto.kiyoshi@ jri.co.jp

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