Five Years of Abenomics: The Good, the Bad and the Sluggish
(Bloomberg) -- Five years since Shinzo Abe came to power in Japan the economy is much stronger but falling short of the revolution he pledged to deliver.
Aggressive monetary policy has beaten back the deflationary malaise of previous decades and the weak yen is boosting exports, corporate profits and the stock market.
Yet much of the promise of the prime minister’s Abenomics program remains unfulfilled. Domestic consumption is tepid, companies are reluctant to raise pay for workers and businesses and households worry about the future as the population ages and declines. And the nation’s huge debt still casts a shadow over the future.
Here is an assessment of progress on some key economic indicators:
While the growth trajectory in the chart below may look modest, and needs to speed up to meet Abe’s target, the economy is 56 trillion yen ($494 billion) larger than when he took office in December 2012. This increase alone is bigger than Belgium’s gross domestic product. Encouragingly, capital expenditure is picking up, pointing to more growth.
The trouble is, Japan could be doing better. While the economy is in its longest growth run since the mid 1990s, many of its peers look stronger and the expansion isn’t surprising in the current global climate. Structural reforms have slowed and Japan owes a lot to overseas demand for the nation’s products. This comes up month after month in export gains, which aren’t matched in domestic figures for household consumption.
The national debt has stabilized at around 240 percent of GDP under Abe, according to IMF estimates. That in itself is an achievement, but the burden is still significantly heavier than in many other major economies and the prospects for cutting it seem dim for now. More worryingly, as the population declines, debt measured per capita is still increasing.
Back to Work
A notable success of the last five years has been the rising number of people working, which has jumped by 2.7 million while the ranks of the unemployed have shrunk by 1.1 million. Much of the increase has been from women re-entering the workforce, with more childcare playing a big part. Yet Abe’s early goal of having women take 30 percent of management positions in all fields by 2020 has fallen by the wayside. The percentage of women in parliament has actually declined slightly, to 10.1 percent, and just two of his 20 cabinet members are women.
Wages are inching higher but remain a stumbling block for Abenomics. Like in many other countries, Japan’s extremely tight labor market isn’t translating into big pay hikes for workers. A Bloomberg survey of economists shows that Japanese employees may see a 1 percent increase in their total earnings next year. Yet much more is needed for household spending to rise and for companies to feel confident about increasing prices. Without either of these, the Bank of Japan will continue to struggle to get inflation to its 2 percent target, though it has ended deflation for now.
Productivity and Reform
Stalling growth in labor productivity is a key failure of Abenomics, according to Bloomberg Economics’ Yuki Masujima. He notes that productivity is up in manufacturing, but in the services sector, which employs 70 percent of the workforce, it fell by more than 10 percent from 2003 to 2016. While the productivity slowdown is a global trend, Abe’s "third arrow" structural reforms were intended to address this problem in Japan. Masujima’s scorecard highlights some of the areas of achievement, like corporate governance and the ramp-up of inbound tourism, and the pockets of persistent weakness, such as agriculture and innovation.
Donald Trump’s decision to pull the U.S. out of the 12-nation Trans-Pacific Partnership regional trade plan was a blow to Japan, but Abe has been tenacious in keeping talks alive for a TPP-11 pact. He also sealed a trade deal with Australia and finalized negotiations with the European Union in December on an economic partnership agreement. While he’s closed the door to mass immigration to arrest Japan’s economic decline, Abe has presided over a leap in the number of foreign workers in the country, who now number more than a million.
With Abe having a good chance of staying in office to 2021, which would make him the longest-serving Japanese prime minister in history, his program still has a long way to run.
"This is a rare chance for a Japanese leader to actually get something done -- to put the economy back on its feet," said Masujima. "Abe’s record so far on globalization shows his best effort, but it’s on reform that he’s got to up his game. Ultimately, Abe will probably be judged on whether he increases Japan’s capacity to grow -- which would go a long way in helping it cope with its debt and aging population."
©2017 Bloomberg L.P.