Firms as a whole still strongly feel that they have excess capacity and employees, and that they should reduce their debts to restore financial soundness. Nevertheless, the number of firms that take positive action, such as increasing the amount of fixed investment, is increasing gradually, especially in high-growth sectors. Regarding employment conditions, although the decrease in the number of employees and in wages is slowing, efforts by firms to reduce personnel expenses have prolonged the severity of households’ income conditions. As for the outlook, public investment is likely to increase for some time. This, along with the favorable financial environment created partly by the Bank’s monetary easing, is expected to continue underpinning the economy. Moreover, net exports are likely to follow an upward trend reflecting the recovery of overseas economies, and it is also highly probable that business fixed investment will increase gradually with an improvement in corporate profits and sentiment. However, housing investment is expected to continue declining moderately, and there seems to be no substantial change in firms’ stance to reduce personnel expenses. Hence, it may take some time for households’ income conditions to improve and, in turn, for private consumption to recover. In addition, since firms’ prospects for sales remain modest, careful monitoring is still required to determine whether the recovery in business fixed investment is sustainable and whether it is likely to spread to a wider range of industries.
It is difficult to say in advance what characterises a financial imbalance. A simplified way of describing a financial imbalance is that households, businesses and for that matter also the state base their decisions on increased indebtedness on expectations of the development of wealth and coming real incomes which are then not realised. When this becomes evident, major sacrifices must be made to be able to pay debts. The macroeconomic costs can be high when households are forced to reduce their consumption and businesses their investments to be able to adapt their balance sheets to new expectations. If the problems are so extensive that certain groups quite simply cannot pay their loans, the crisis can spread to the bank system and the macroeconomic costs in the form of unemployment and low growth rise further. These are questions that are discussed frequently and at length with regard to the US economy. There, demand by households and businesses for consumption and investment goods are to a great extent financed on the capital market. Strong growth in wealth and expectations of continued high production growth have driven forward development and this has also been reflected in share prices. A large part of demand has leaked out in imports and there have been continual large American current account deficits. This has been able to happen without inflation speeding up which has to some extent been due to the strong development of the US dollar.