Will Abenomics be exported?
As the global economy seems to be burying the down days of its depression and growing slowly but surely, Japan proves to be an interesting illustration of economic progress. In some ways it seems to function as an anomaly but its current fiscal state could be exactly where the rest of the world is heading.
By some measures, Abenomics, the famous series of monetary stimulus policies introduced by Prime Minister Shinzo Abe, is working like magic. The gross domestic product is up, unemployment is down, and exports are enjoying a rebound thanks to demand from the U.S. and Asia. The Japanese stock market has received a boost and the country is now officially out of recession… just about.
Not all the indicators are so positive. According to opinion polls in December, only 7% of the public anticipated that the economy would improve in 2015. A report last week revealed that household spending fell more than expected, down for the tenth consecutive month, while January retail sales were down for the first time in seven months. The Bank of Japan is hoping that monetary printing will raise confidence and prompt higher spending. However, skeptics point out that wages still haven’t risen enough to compensate for the increase in sales tax last April. There’s also hope that low oil prices will ease the pressure on consumers, but it is possible that the benefits of this will not be apparent for several months, and that consumers will choose to save, not spend, if they still lack confidence in the economic outlook.
Amid these seemingly mixed signals, the real debate is whether Abe’s policies will create real and sustainable progress: the economy has crawled out of recession and is beginning to show signs of life, but can this growth now pick up pace?
Japan is fighting against the odds with its stagnating population and zero-percent interest rate policy, and that’s exactly why the Abenomics model offers such an interesting analysis for the West. European Central Banks have avoided complete disaster but are still figuring out how much monetary stimulus is the right amount, while their countries face the future challenge of aging populations. If Japan’s policies can effectively revive the economy from its multi-decade sluggishness, then maybe we should be taking note and considering similar action.
Will the shaky ground on which the Japanese economic recovery stands soon become more stable? It is certainly easy to envisage the country’s future growth but we’ll have to wait patiently to see if that’s the case in practice. Abe will certainly be hoping that the current escape from recession is not merely temporary, and that the coming months will bring higher exports and wages, which in turn will give public and investor confidence a must needed boost.