bank of japan ’ s july report of recent economic and financial developments1 bank of japan, 16 july 2003. * * * the bank ’ s view economic activity remains virtually flat. with regard to final demand, business fixed investment is on a gradual recovery trend, albeit showing some fluctuations. meanwhile, private consumption continues to be weak, housing investment remains sluggish, and public investment is declining. net exports are virtually flat. industrial production continues to be basically level in response to these developments in final demand. corporate profits continue to recover, although the pace is moderating. under these circumstances, uncertainty regarding the economic outlook is diminishing somewhat, and business sentiment is improving to some extent, mainly among large manufacturing firms. as for the employment situation, the number of employees including non - regular employees such as temporary workers has almost stopped declining. however, the increase in the overtime hours worked and new job offers has come to a halt. firms are maintaining their stance on reducing personnel expenses, and household income still continues to decrease as wages are on a downtrend, albeit gradual. thus the employment and income situation of households overall remains severe. turning to the economic outlook, a widely shared view of the prospect for overseas economies is that the growth rate, especially that of the u. s. economy, will accelerate in the second half of this year reflecting diminished geopolitical risks. for the time being, however, the pace of recovery in the u. s. economy is projected to remain very gradual. moreover, economic activity in east asia has decelerated somewhat, due partly to the slower growth of domestic demand in south korea and the epidemic of severe acute respiratory syndrome ( sars ). in this situation, both exports and industrial production are projected to remain virtually flat for the time being. with respect to domestic demand, public investment is projected to follow a declining trend, and private consumption is likely to remain weak for some time due to the severe employment and income situation. meanwhile, the uptrend of business fixed investment is expected to become established in the period ahead, mainly in large manufacturing firms, whose investment has been thus far significantly restrained despite the recovery in their profits. however, the pace of increase in overall business investment is likely to remain modest, as long as uncertainty regarding a recovery in exports and production remains. overall, assuming that the growth rate of overseas economies accelerates in the second half of this year, the uptrend in exports and production will resume gradually, which in turn

of the education system or in territorial planning. www. bportugal. pt empirical evidence 2 points to social segregation in schools as a driver of skills inequality. the relatively poor performance by students from disadvantaged backgrounds is partly correlated to the fact that they are clustered together in lower quality schools. likewise, social housing policies should not bring about the creation of loser and winner communities. each community should include individuals considered winners and losers, in order for the former to be inspired by the latter and never stop believing they have equal opportunities to generate income. inclusive social housing is precisely one area of public policy that has benefited extensively from the expertise and contribution of the council of europe development bank, which has the noble mission of supporting social inclusion in europe. conclusion in conclusion, let me highlight the following key messages. • globalisation ’ s impact operates in at least two dimensions – income and employment. globalised trade impacts the level and distribution of income, but it also impacts the way employment is distributed across territories and across sectors. • redistribution will always be the reverse side of globalised trade. there will always be gains, but also losses … there will always be creation, but also destruction. low - skilled workers and sectors competing with imports are evident examples. studies show that redistribution costs rapidly surpass trade gains. and some of those costs are not reversible. when, for example, a given regional cluster disappears due to competition, it may never resurge again. • if there are no compensation mechanisms, discontent will rise. the european convergence machine has partially compensated for the impacts of globalisation through cohesion policies. public transfers are adequate as a first, more agile, response. ridao - cano, cristobal ; bodewig, christian ( 2018 ). www. bportugal. pt • however, public transfers won ’ t effectively solve the problem of loser communities, socially and geographically marginalised. this redistribution across communities has been shown to be empirically more important than redistribution across skill levels. without any other complementary policy, public transfers may generate dependency and destroy incentives. this problem can only be effectively solved o by adapting policy to the cultural preferences of those communities ; o by designing basic institutions in a way that every community is involved in the production process and becomes the owner of its own destiny ; o and by submitting globalisation to a set of basic rules ensuring everyone benefits from a fair level playing field and public intervention is dully framed. • in sum, a fine balance