Japan’s Prime Minister Shinzo Abe took a page from French President Francois Hollande’s playbook and RAISED taxes to solve Japan’s economic woes. But it must have been the recipe for Hollandaise Sauce instead, since Japan’s GDP tanked -6.8% in Q2 while real household income fell -6.6%.
Aug. 13 (Bloomberg) — Japan’s economy contracted the most since the record earthquake three years ago as consumption and investment plunged after an April sales-tax increase aimed at curbing the world’s biggest debt burden.
Gross domestic product shrank an annualized 6.8 percent in the three months through June, the Cabinet Office said. That was less than the median estimate of 37 economists surveyed by Bloomberg News for a 7 percent drop. Unadjusted for price changes, GDP declined 0.4 percent.
While Prime Minister Shinzo Abe is counting on a quick rebound, the economy was struggling in June, with output falling the most since March 2011 as companies tried to pare elevated inventories. The government is ready to take flexible action if needed, Economy Minister Akira Amari said today, as Abe weighs whether Japan can bear another bump in the levy in 2015.
“The probability is high that the July-September quarter will see a rebound,” said Takeshi Minami, chief economist at Norinchukin Research Institute Co. in Tokyo. “But the fall in real incomes and weakness in production could weigh on the recovery.”
The contraction followed a surge in growth in the three months through March when consumers and companies rushed to make purchases before the tax rose. Abe is striving to sustain a recovery after initial success in fighting off two decades of economic stagnation.
Yes, I would consider a debt-to-GDP ratio of 226.10% to be a burden.
Coupled with real household income declining 6.6%.
And Japan’s house price index continues to fall after peaking in 1991.
Yes, Abe’s recipe for breaking out of stagnation is the same one the France’s Hollande uses: Hollandaise Sauce. That is, raising taxes to fix the economy.
If I were Abe and Hollande, I would throw this recipe away and try something healthier.