When structural adjustment has ended, the effect of productivity improvement due to the IT revolution may materialize, raising the potential growth rate to 1.5 percent to 2 percent as recently asserted by Jorgenson (2003).
To summarize, we will have better prospects of overcoming deflation as the output gap narrows if the following two conditions are fulfilled: (i) the real growth rate exceeds the potential growth rate by 1 percent after taking account of the Paasche price index bias for the two years of structural adjustment period, designated by the government; and (ii) the output gap remains around 1 percent.6 In addition, the higher-value-added new products in the manufacturing industry, the recovery of pricing power through consolidation and integration in raw material industries, and the stronger preference of the household sector for higher-value-added products suggest that a business model with new value-added-products are in the process of being created after a period of price destruction.