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Economic Forecast for the Kansai Region in Fiscal 2006

December 13, 2005

Overview

Since mid-2004, the economy of the Kansai region has been stuck on a plateau, caught in a struggle between "upward forces" and "downward forces". In recent months, however, the prospects of escape from this plateau have opened up.

On the export front, shipments to the United States have remained steady, shipments to China have begun to recover and shipments to oil-producing countries of the Middle East and Russia have seen rapid growth. As a result, the July-September quarter of 2005 saw the Kansai region's exports virtually bottom out in real terms.

Industrial indicators for the Kansai region show that although inventories are tending to accumulate, the rises have been slight, stopping short of the levels that forced manufacturers into the pattern of large-scale inventory accumulation and production adjustments that distinguished the recession. In recent months there have been promising developments including progress with inventory adjustments and the recovery of shipments in the electronic components and devices sector.

The economic "plateau phase" saw some companies in the Kansai region failing to carry out capital investment plans but with prospects of escape from the "plateau" open up, a growing number of companies have begun to expand their investment plans.

As economic growth in the Kansai region has continued, the year-on-year change in the number of persons in employment and the level of per capita wages is becoming positive. As a result, consumer spending is also beginning to recover.

The present growth phase is on the way to becoming one of the longest periods of sustained economic expansion that the Kansai region has seen. In the past, events such as the deceleration of overseas economies, policy shocks such as tax hikes or the collapse of the bubble economy have disrupted the economy, but on this occasion, the scale of the foreseeable negative factors is small.

The Kansai economy is likely to continue growing through fiscal 2006, achieving a real growth rate of 2.0%. In fiscal 2002, the growth was led by external demand, but in fiscal 2006, which will be the fifth since the growth phase began, it will increasingly be led by domestic demand, with a rise in capital investment and a recovery in consumer spending.

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

Tel: 03-3288-5204
E-mail:yoshimoto.kiyoshi@jri.co.jp / nishiura.mizuho@jri.co.jp

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