The April increase of the VAT impact on consumer confidence, as prices rose. Today, however, this effect seems to be weaker. In July, consumer confidence index rose to 41.5 from 41.1 in June, according to official figures on the 11th of August.
GDP decline that occurred in the second quarter was due mainly to an increase of 3% VAT, which came into force in April. Consumers shopped “in reserve” to increase taxes – that has caused the growth of consumption in the first quarter – so, in the second quarter decreased demand for goods, which led to a sharp decline in GDP in the April-June.
Increasing debt burden
Against the background of a sudden and sharp decline in Japan’s GDP in the second quarter, Prime Minister Shinzo Abe to approve another supplementary budget – the third – to stimulate economic growth, rather than to refrain from raising taxes.
Another supplementary budget entails the risk of rising debt in a country where its rate – the highest among advanced economies in the world. The ratio of government debt to GDP in Japan is about 227.2%. Its comparison with the coefficients of other developed countries such as the United States (101.53%) and Great Britain (90.6%) said about the extent of the debt of the Japanese economy.