Friday, September 13, 2013
STOCK FOCUS: Tokyo Olympics May Not Be So Great For Economy
TOKYO (NQN)--With Tokyo selected Sunday to host the 2020 Summer Olympics, most talk since has been about the positive effects the Games will bring.
Market players are focusing on three matters: a possible rise in construction workers' salaries; the outlook for fiscal health; and the future of the government's growth strategy.
According to a July survey on supply and demand for construction work compiled in August by the Infrastructure Ministry, the shortfall of construction workers rose 0.5 percentage point from June to 1.5%. The number of construction workers in 2012 totaled 5.03 million, roughly 1 million fewer than in 2002, when Japan hosted the soccer World Cup. Labor shortfalls are largely due to swelling demand for projects to rebuild areas in the Tohoku region damaged by the Great East Japan Earthquake of 2011.
Dai-ichi Life Research Institute Inc. estimates that construction labor is short 410,000 workers. The research firm forecast that the number of construction workers will fall short by some 1 million people once Olympic-related construction starts.
Meanwhile, wages for construction workers are rising, with unit labor costs for public works projects for fiscal 2013 climbing about 15%. An official at a major general contractor said domestic construction investment will likely increase thanks to construction of Olympic facilities and infrastructure development.
However, Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute, is more grim. He says that profits for general contractors will not expand as much as market players expect, mostly because of rising wages.
Another source of concern is the fiscal health outlook. An opposition lower-house lawmaker says sentiment in Nagatacho, the government's nerve center, following Sunday's Olympic selection is starting to look more to increasing public works projects.
Seiichi Suzuki, market analyst at Tokai Tokyo Securities Co., says there are concerns that Japan's medium-term growth strategy may be neglected if public works spending expands. The government is expected to implement economic measures worth 5 trillion yen, which will likely come from the supplementary budget, in addition to the consumption tax rate hike. Prof. Shinichi Fukuda at the University of Tokyo and others are concerned that most of the supplementary budget will be used up on public works projects.
Overseas investors may start selling Japanese stocks if the positive effects from a capital investment tax cut are weighed down by conventional public works projects or if the government postpones reducing the corporate tax rate.
"The 2020 Olympics may both benefit and harm the Japanese economy," Nagahama warns. China, Greece and Australia saw their economic growth rates fall across the board after hosting the Olympics.