Japan’s households tighten purse strings as sales tax and typhoon hit

Japanese consumers went on a September shopping spree to beat a hike in sales tax. But household spending has slumped in the run-up to Christmas. (AP)
Updated 06 December 2019

Japan’s households tighten purse strings as sales tax and typhoon hit

  • Falls in factory output, jobs and retail add to fears of worsening slowdown after Tokyo unveils $122bn stimulus package

TOKYO: Japanese households cut their spending for the first time in almost a year in October as a sales tax hike prompted consumers to rein in expenses and natural disasters disrupted business.

Household spending dropped 5.1 percent in October from a year earlier, government data showed on Friday.

It is the first fall in household spending in 11 months and the biggest fall since March 2016 when spending fell by 5.3 percent. It was also weaker than the median forecast for a 3 percent decline.

That marked a sharp reversal from the 9.5 percent jump in September, the fastest growth on record as consumers rushed to buy goods before the Oct. 1 sales tax hike from 8 percent to 10 percent.

“Not only is the sales tax hike hurting consumer spending but impacts from the typhoon also accelerated the decline in the spending,” said Taro Saito, executive research fellow at NLI Research Institute.

“We expect the economy overall and consumer spending will contract in the current quarter and then moderately pick up January-March, but such recovery won't be strong enough.”

Household spending fell by 4.6 percent in April 2014 when Japan last raised the sales tax to 8 percent from 5 percent. It took more than a year for the sector to return to growth.

Compared with the previous month, household spending fell 11.5 percent in October, the fastest drop since April 2014, a faster decline than the median 9.8 percent forecast.

Analysts said a powerful typhoon in October, which lashed swathes of Japan with heavy rain, also played a factor in the downbeat data. Some shops and restaurants closed during the storm and consumers stayed home.

Separate data also showed the weak state of the economy.

The index of coincident economic indicators, which consists of a range of data including factory output, employment and retail sales data, fell a preliminary 5.6 points to 94.8 in October from the previous month, the lowest reading since February 2013, the Cabinet Office said on Friday.

It was also the fastest pace of decline since March 2011, according to the data.

Real wages adjusted for inflation, meanwhile, edged up for a second straight month in October, but the higher levy and weak global economy raise worries about the prospect for consumer spending and the overall economy.

While the government has sought to offset the hit to consumers through vouchers and tax breaks, there are fears the higher tax could hurt an economy already feeling the pinch from global pressures.

Japan unveiled a $122 billion fiscal package on Thursday to support stalling growth and as policymakers look to sustain activity beyond the 2020 Tokyo Olympics.

A recent spate of weak data, such as exports and factory output, have raised worries about the risk of a sharper-than-expected slowdown. The economy grew by an annualized 0.2 percent in the third quarter, the weakest pace in a year.

Analysts expect the economy to shrink in the current quarter due to the sales tax hike.


Technology will not replace labor despite rapid digital transformation

Updated 28 January 2020

Technology will not replace labor despite rapid digital transformation

  • Hayman said he believes technology should help people and offer them support rather than replace them
  • The UAE is among the top performers in the Middle East in terms of digital transformation in industrial sectors

ABU DHABI: Digital technology will not replace labor; the aim of it is to improve areas of inefficiency in different industrial sectors, CEO of AVEVA Group plc Craig Hayman told Arab News.

Most sectors around the world from retail to financial services and telecommunication, have been digitized in some way, according to Hayman.

But while this widespread introduction of digital technology inevitably reduces costs and increases efficiencies in the workplace, it is also seen by many as the death knell for their jobs.

A 2019 report by the Organization for Economic Co-operation and Development (OECD) estimates that approximately 14 percent of workers globally will face a high risk of their jobs one day becoming automated and “32 percent face major changes in the tasks required in their job and, consequently, the skills they would need to do their job.”

Another 2017 McKinzy&Company report said up to 800 million workers around the world could be replaced by robots by 2030.

But Hayman said he believes technology should help people and offer them support rather than replace them.

“In the industries AVEVA serves, there are so many areas of inefficiency that we are delivering improvement for without any replacement of labor. It is more about giving the people more tools to effectively do their jobs,” he added.

For example, Hayman said, a worker who is doing maintenance repair is given the tools to know more about the correct isolation procedures around this repair.

OECD’s 2019 report said the effect of digitization on labor will not be evenly distributed nor happen at a steady pace. “It is most likely to be concentrated in certain jobs, selected sectors and particular geographical areas, and may move in fits and starts,” the report adds.

While digital technology around the world began to witness a transformation in the last decade across different industrial sectors, the Middle East has become a major contributor to this transformation.

The UAE is among the top performers in the Middle East in terms of digital transformation in industrial sectors, Hayman said.

A 2016 report by McKinzy&Company also said the UAE ranks the top in adopting digital technology and it matches the world’s digital leaders on several metrics.

Hayman said he believes there is a strong digital ambition in the region. “I think some of the digital projects in the Middle East are starting to yield good results. We have seen this with customers like Al-Marai and Abu Dhabi National Oil Company (ADNOC).”

In the UAE’s oil and gas sector for example, there is ADNOC’s Panorama Digital Command Centre which is a real-time data visualisation centre that offers insights and identifies new ways to improve performance. “The Panorama Digital Command Centre is known around the world; that was an eight-week project for us almost two years ago,” Hayman said.

Abu Dhabi's Crown Prince Sheikh Mohamed bin Zayed Al Nahyan inaugurated ADNOC's advanced Panorama Command Centre and Artificial Intelligence (AI) platform on Nov 12, 2017. (WAM)

Saudi Arabia’s Aramco has also established tech projects such as “the use of robots and self-guided autonomous devices in remote inspection and maintenance in plant areas, and the installation of smart sensors with advanced analytic capabilities,” according to a 2018 report by Aramco.

When asked how much companies spend to digitize their services in the oil and gas sector, Hayman said about $250 billion a year was spent in capital expenditure in the oil and gas sector.

Saudi Arabia has adopted a digital transformation strategy that began in 2019 and is expected to conclude in 2022. The strategy’s “main components are digital health, digital education, e-commerce, and smart cities,” a 2019 report by the Saudi National Platform said.

On health, the Kingdom launched a telemedicine technology in which in 2019 it saved a million lives out of which 10,000 were critical, the Kingdom’s Minister of Communication and Information Technology Abdullah bin Amer Al-Swaha said in a panel discussion held in Davos at this year’s World Economic Forum.

Telemedicine is a technology that provides electronic clinical services to patients without an in-person visit.

In the digital education sector, Saudi Arabia established the Saudi Digital Library (SDL), which is said to be the largest collection of academic information resources in the Arab world, according to the Kingdom’s Ministry of Education. “SDL includes over 310,000 scientific references covering the different academic disciplines. The content of the library is continuously updated, providing huge resources of knowledge in the long run.”

When asked about the opportunities and challenges the digital trend creates for entrepreneurs, Hayman said if an entrepreneur can deliver technology in the context of trust and partnership, he or she is definitely moving on the right track.

A 2019 report by the World Economic Forum said digital technology can help the government and private sectors to create initiatives that form “a holistic global entrepreneurial ecosystem that enables sharing, learning and access to resources at a mass scale and at low cost.”