Ever the optimists, analysts are now saying that although the Japanese economy suffered a crippling fall of 15.2% (annual) in output in the March quarter, they can see the way clear for a recovery in coming months.
And there are some small hints that the ‘off the cliff’ collapse seen last December-February has eased quite noticeably.
But that doesn’t mean rebound looms.
The contraction, revealed yesterday by the Japanese Cabinet Office in Tokyo was a record, unwanted, but a record nevertheless.
It was made more stunning by the revision of the fall in the December quarter to a nasty 14.4% (annual rate), from around 12.2% originally reported.
Quarter on Quarter the Japanese economy fell 4% in March from December (a revised minus 3.8% in December).
In contrast the US economy was down around 1.5% (6.1% annual in the first reading for the quarter).
In five months from November to March, the Japan economy contracted more than the US annual rate, while in the Japanese financial year to March 31, GDP fell a record 3.5% in real terms and the first such fall in seven years.
Because the preliminary figure came in under the 16.1% annual slump forecast in various surveys, economists said that was a sign that the slump was bottoming. It might be, with industrial production seemingly edging higher.
An unprecedented collapse in exports, business investments and the liquidation of stocks of unwanted goods (especially cars and consumer and business IT products and entertainment equipment) were also seen as setting the scene for a recovery later this year.
It was the steepest fall in Japan’s economy since records began in 1955, said the office, adding that the economy declined for four quarters in a row for the first time in history.
Domestic demand fell 2.6 percentage points from the previous three months, while demand from overseas dragged it down 1.4 points.
Japanese exports fell 26% in the three months to March from the previous quarter, while corporate capital investment dropped 10.4%, according to the Cabinet Office report.
Destocking of inventories might have contributed a negative 0.3 percentage points to GDP in the first quarter, but it’s slowing.
While such cuts made the headline GDP figure look even worse (as they always do when economies are falling), it means that companies are making progress in clearing their decks and should soon be able to increase production to meet actual demand.
But private consumption fell 1.1% in the first quarter compared with the previous three months.
So whether these are ‘green shoots’ or normal relief moments after a terrible plunge in activity, is really not the question.
That is: what happens if no one wants to buy Japanese good in the US, Europe and Asia in the quantities that would underwrite a rebound or orders are only sufficient to steady the slump, not reverse it?
That’s a question more and more economists are asking in the US and Europe as they wonder if consumers and business have the financial strength and appetite to boost buying goods and services in sufficient volumes to trigger a rebound.
If banks are still hesitant about lending, if business is still hesitant about investing and ordering from other businesses, and the American housing sector remains a bottomless black hole, then the chances of a well founded recovery look slim, especially with so much unwanted capacity in cars, IT and CE products, chemical, steel, copper processing, aluminium and the like.
The rebound in world equity markets has spurred investor sentiment the past month and lifted sentiment in many economies, but so far nothing has emerged to justify much of the optimism about the health or longevity of the green shoots.
Judging by his speech in Sydney yesterday and on the minutes of the May board meeting, Reserve Bank Governor Glenn Stevens, would be among the few public optimists currently willing to stick their heads up.
But Japanese Prime Minister Taro Aso’s government is at least spending a record 15.4 trillion yen ($US160 billion) stimulus package, even though it is weak politically and despite a scandal that has seen the opposition parties lose ground and their leader in a corruption probe.
Besides the small steadying in production, the plunge in exports seems to have stopped, consumer confidence has risen, even though retail sales are falling and price deflation is taking hold.
The Japanese stockmarket has recovered 32% from the 26 year low set in early March (as have most other major markets around the world).
There is at least confidence that the worst is over, and a belief the slump has steadied.
But Japan, like China, needs solid growth in offshore demand for its products to lift itself out of the mire.
China, at least has the financial strength and the huge underdeveloped domestic market to throw money at, while Japan has an aging, mature domestic economy where consumption is not and will never be a big driver.
It is an export machine, so that’s why the likes of giants such as Toyota, Sony, Panasonic and others foresee another year of losses: not as deep or wrenching as over the last six months of the March, 2009 financial year, but red ink nevertheless.
That will limit the scope of any rebound in Japan.
That’s also going to be a factor that limits the recovery in the other global basket case, Germany, which has linked itself even closer to exports than either Japan or China has.
Global demand is not likely to revert to the boom years of 2007 and 2008,
