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Japan in the World

The global economy as the pandemic endgame approaches

January 2022

Japan in the World The global economy as the pandemic endgame approaches

Approaching the pandemic endgame	1
Accelerated inflation due to supply constraints	2
Emerging concerns of economic slowdown in China	3
Reopening of economies looks set to ease supply constraints	4
Low probability of financial disequilibrium	5
A risk of greenflation	6
Risk of asymmetric reopening of economies	7
Japan enters the reopening phase	8
Significant job losses have been avoided in Japan	9
Subdued wage growth remains unchanged	10
Disadvantages of a cheaper Japan	11
To reboot Japan's potential growth rate	12
Green and digital will drive structural reform in Japan	13

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1

Approaching the pandemic endgame

Deviation of real GDP level from past trend (2010-19)

(%)

4.0

2021 2022

2.0

0.0
-2.0
-4.0
-6.0
-8.0	World	economies Advanced	States United	Japan	area Euro	and market Emerging economies developing	China	India	5-ASEAN

Note: To estimate GDP deviation from the trend in 2021 and 2022, we measures the projected real GDP level based on IMF forecasts.

Source: Nomura, based on IMF data

Having faced repeated surges in infection, progress in vaccination has started to lead the global economy to the eventual endgame of COVID-19.

Despite differences in timing and degree of recovery among advanced and emerging economies, the world economy will more or less return to the pre-COVID growth trend in 2022.

2

Accelerated inflation due to supply constraints

Core consumer price inflation rate in major developed economies

(y-o-y, %)
5.0	Eurozone
4.0	Japan
US
	UK
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
00	02	04	06	08	10	12	14	16	18	20	(CY)

At the same time, we are facing a sort of growing pain ahead of the endgame.

The production of various durable goods, the demand for which surged during the pandemic as stay at home and work from home became common, now suffers supply constraints for intermediate parts including semiconductor chips.

Mismatches in supply and demand caused by supply constraints are leading accelerated inflation, driven by elevated international commodities prices.

Note: Definition of 'core' depends on particulars for each economy. Japan's core inflation includes impacts of consumption tax hikes and free education policy.

Source: Nomura, based on Haver Analytics data

3

Emerging concerns of economic slowdown in China

China's official manufacturing PMI and Credit Impulse Index

Concern for the Chinese economy is casting

(y-o-y, %)				Credit impulse index (LHA)	(DI)	a shadow over the global economy heading
20.0				58.0
				Official manufacturing PMI (RHA)		toward reopening.
								56.0	Besides the deceleration of production
15.0
								54.0	activities due to supply constraints, 'Common
									Prosperity' policy enacted by the Xi Jinping
10.0								52.0	administration is involving various tightening
								50.0	and controlling measures on economic
5.0									activities.
								48.0
0.0								46.0
								44.0
-5.0
								42.0
-10.0								40.0
05	07	09	11	13	15	17	19	21 (CY)

Source: Nomura, based on Haver Analytics data

4