Will the Economy Stall with the End of Eco-Points?
Hidetaka Yoneyama
Senior Research Fellow
March 7, 2011 (Monday)
Will the Economy Stall with the End of Eco-Points?
In 2011, Japan’s economy has come to the critical moment that will show whether or not it can sustain continuous recovery now that the financial crisis is over and economic-boosting measures have ended.
Following in the footsteps of last year’s Eco-Car subsidies, the stoppage of Eco-Points will have a great effect on consumption, which it has stimulated up to now. However, rush demand before the stoppage took effect in March was not nearly as great as expected. This may be because Eco-Points have been reduced gradually over time; points were reduced by almost half in December of last year, and there was a large-scale rush demand for flat-screen TVs in November, when demand peaked, with the number of flat-screen TVs sold equaling 5.3 times that of the year before (GfK Japan). Sales after December have fallen due to a rebound from November’s rush demand.
The number of flat-screen TVs shipped domestically in 2010 was 25.19 million—80% more than that of 2009, while 2011 numbers are expected to drop by 60% compared to 2010 due to a rebound from special Eco-Point demand (JEITA). The introduction of Eco-Points has had two simultaneous effects: it has accelerated flat-screen TV demand, thus propping up the economy; and it has also increased the number of digital terrestrial broadcasting-ready TVs in preparation for the complete switchover to digital terrestrial broadcasting in July of this year.
However, the resulting rebound will decrease demand in 2011, and a slowing of the economy seems unavoidable. Fighting against these adverse winds, the consumer-electronics industry has no choice but to resort to lowering prices in order to raise demand for flat-screen TVs, which will have the negative effect of spurring on deflation.
While such negative effects are inevitable, it seems that an overall slowing of the economy may be avoided in 2011 after all. Emerging countries have been tending towards inflation due to their economic expansion, but their brisk growth continues unabated. With the US’s economy rallying as well, Japan’s exports are likely to pick up with the favorable condition of overseas economies. Corporate profits are trending continuously toward improvement, workers’ incomes are increasing, albeit very gradually, and the worst is behind us for capital spending as well. If these first sprouts of the economy’s self-sustaining recovery grow and flourish through the second half of 2011, then economic-boosting measures such as Eco-Points will have fulfilled their role of acting as a stopgap until the sprouts have grown.
