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News Release

The Kansai Economy Feels the Chill as Cold Winds Blow from Overseas and Other Regions of Japan
- 2009 expected to bring first negative growth in 8 years -

December 11, 2008

Overview

It had been hoped that the slowdown in economy of the Kansai Region would be limited. This was partly because exports to Asia, which are central to the trade structure of the Kansai Region, did not start to fall as early as exports to Europe or the United States and partly because capital investment was holding steady, owing to the implementation of large-scale investment projects. However, given that the Kansai economy is also likely to see a slump in transactions with other regions of Japan that are more strongly affected by the global economic turmoil, it now seems likely that the Kansai economy will also feel the chill more strongly, albeit with a time lag.

Estimates of the impact of a fall in the exports from other regions of Japan on the value of the Kansai Region's manufacturing shipments and production suggest that a 10% fall in exports to the United States would lead to a 0.27% fall in value, while similar falls in exports to the EU, China and the Asian NIEs and ASEAN countries would cause falls in value respectively of 0.15%, 0.15% and 0.32%. A 10% fall in exports from the Kanto Region would have the greatest impact, leading to a fall in value of 0.40%, while similar falls in exports from the Chubu, Chugoku and Kyushu regions would cause falls in value respectively of 0.35%, 0.13% and 0.09%. A 10% fall in capital investment in other regions of Japan would lead to a 1.72% fall in the value of the Kansai Region's manufacturing shipments and production. Here again, the Kanto would have the greatest influence, a 10% fall in capital investment in that Region leading to a 0.69% fall in value. Similar falls in the Chubu, Chugoku and Kyushu Regions would lead, respectively, to falls of 0.44%, 0.19% and 0.18%.

In addition to the impact of the fall in transactions with other regions of Japan, another factor in the economic slowdown is likely to be a fall in the exports of the Kansai Region itself as the economic downturn in Europe and the United States begins to affect Asia. A 10% fall in the Kansai Region's exports to the Asian NIEs and the ASEAN countries would have the greatest impact, leading to a 1.26% fall in the value of the Kansai Region's manufacturing shipments and production. Similar falls in exports to China, the EU and the United States would lead, respectively, to falls of 0.62%, 0.46% and 0.46%. As a result of the fall in production due to the decline in transactions with other regions and the fall in exports, the fall in capacity utilization rates and the deterioration in corporate earnings, among other factors, it is likely that the tendency to restrict capital investment will also grow in the Kansai Region. A 10% fall in capital investment within the Kansai Region would lead to a 0.50% fall in the value of the Kansai Region's manufacturing shipments and production.

Of the factors in the fluctuation of real employee wages in the Kansai Region, per capita nominal wages and number of persons in employment are expected to continue to fall until corporate earnings begin to recover on the strength of an upturn in the global economy, but prices are expected to fall and begin to boost real incomes during fiscal 2009. The nominal impact of teigaku kyufukin fixed-sum benefit payments on consumer spending in the Kansai Region is likely to be around +0.4%. Thanks to these factors, consumer spending will help to underpin the economy, but as employment and wages are both expected to fall, its effect will not be so great as to provide a significant boost to growth.

In fiscal 2009, exports, which have until now been the driving force of the Kansai economy, are expected to see their greatest year-on-year fall since the Asian currency crisis in fiscal 1998 or the collapse of the IT bubble in fiscal 2001. As corporate earnings deteriorate, capital investment in the Region is also likely to be curbed still further, especially among small- and medium-sized enterprises. Consumer spending will underpin the economy as falling prices help to boost real purchasing power, but as per capita nominal wages and employment are expected to fall, it will not be enough to boost growth to any significant extent. The lack of an engine for growth means that real economic growth in the Kansai Region during fiscal 2009 is likely to be around -0.8%, below the 0.2% recorded for fiscal 2008.

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

Tel: 06-6534-5204

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