FY12 Supplementary Budget Will Boost FY13 GDP by 0.7 Points

◆The cabinet approved the draft of the FY12 supplementary budget on 15 January in order to carry out the Abe administration’s economic measures, Emergency Economic Measures for the Revitalization of the Japanese Economy, approved 11 Jan by the cabinet.

◆The FY12 supplementary budget amounts to Y10.2 trillion, the largest figure following that for FY09 in the wake of the Lehman crisis, of which we expect Y4.7 trillion to go to actual public works spending, boosting FY13 GDP by 0.7-percentage points.

◆Fiscal policy management plays a role in economic stability. However, budgets enabling largescale public works spending have often been followed by reactionary plunges. This, combined with a situation where budget execution for reconstruction projects for 2011 quake/tsunami affected areas is expected to play out gradually in FY13, will likely result in a plunge in public works spending, dragging down real GDP growth by 0.9-percentage points in FY14. At the same time, personal consumption is likely to see a reactionary plunge following front-loaded consumption in advance of the expected consumption tax hike in April 2014. As such, repercussions from policy measures are expected to substantially depress GDP growth in FY14. Thus, we expect the FY13 principal budget, which is likely to be approved by the cabinet shortly, to take into account factors impacting following years.