Tough times for two of our major trading partners: Deflation is now gripping Japan, with prices falling a record 1.1% and the New Zealand economy is having its longest and deepest recession in almost 20 years.
News of the deepening bout of deflation came ahead of the release of information on business sentiment, industrial production and unemployment over the coming five days.
The fall in consumer prices was the largest since Japan started compiling comparable figures in 1971.
Closer to home, the New Zealand economy shrank for a fifth straight quarter in the three months ended March as the recession maintained its grip.
The economy contracted by 1% in the March quarter, from the December quarter, when it contracted by a similar amount. That was the worst performance for 17 years
The figures, from Statistics New Zealand topped market estimates for a fall of 0.7%.
The news matched the forecast earlier this month from the governor of the Reserve Bank, Allan Bollard, who said the economy would contract this year and no start growing until the 4th quarter.
Statistics NZ said the fall for the year ended March 31, was 1%, the first annual-average contraction since 1992.
"The largest contributors to the annual decline in GDP were construction (down 8.9 percent) and manufacturing (down 5.4 percent)," the group said.
For the quarter ended March, Statistics NZ said:
"The main contributor to the decline this quarter was manufacturing activity, which fell 7.2 percent.
"Nearly all manufacturing sub-industries decreased this quarter, with the food, beverage, and tobacco; machinery and equipment; and metal product sub-industries recording the largest falls.
"Construction activity was up 0.4 percent this quarter, following four quarters of contraction.
"Non-residential building activity fell, but this was offset by a rise in other construction activity.
"Other construction includes work on projects that are not buildings, such as roads, bridges, railway track maintenance, and power plants.
"Partly offsetting the decreases in GDP in the latest quarter was an increase in real estate and business services, which rose 3.2 percent."
"The expenditure measure of GDP, released concurrently with the production measure, decreased 0.7 percent in the March 2009 quarter.
"Household consumption expenditure, which measures the volume of spending by New Zealand households, was down 1.4 percent, the largest quarterly decline in household spending since the June 1991 quarter.
"The main driver of this was durable goods, which includes spending on motor vehicles, furniture, and major appliances."
Unlike Australia where the slowdown has been linked to a fall in demand from the previously booming resources sector, NZ has suffered a sharper than expected fall in manufacturing (Like Japan, and Germany, for example, have).
But domestic demand fell by the largest amount since the early 1990s as consumers shut their wallets.
Statistics New Zealand said "the expenditure measure of GDP, released concurrently with the production measure, decreased 0.7 percent in the March 2009 quarter.
"Household consumption expenditure, which measures the volume of spending by New Zealand households, was down 1.4 percent, the largest quarterly decline in household spending since the June 1991 quarter.
"The main driver of this was durable goods, which includes spending on motor vehicles, furniture, and major appliances."
The Organization for Economic Cooperation and Development said in a report this week that the NZ economy will probably contract by 2.9% this year before growing 0.6% next year.
The jobless rate, which was 5% in the first quarter, could jump past 8% next year (7.7% for Australia, according to the OECD).
In Japan, a sharp fall in inflation for May has left consumers facing a couple of years of falling prices, which will add to the already enormous strains on business and production.
The Bank of Japan and the Government have already forecast deflation will continue for up to two years, now the official figures are confirming that harsh fact.
Deflation increases the real cost of money, even if interest rates are at record lows; forces consumers and business to delay spending (because they know the price will be lower in future times) and will make recovery from the export led recession even tougher.
Japan may go through an inventory growth phase in the next few months, as businesses rebuild stocks, but with little reason to buy; consumers and business won’t spend, forcing growth in the economy back into negative territory.
With global demand weak, exports won’t save Japan and employment, as they did from 2002 onwards.
Japan has a lot of domestic stimulus underway, but little of it will force already overbought consumers to buy more cars, electronics goods, food or other consumer durables.
Consumer inflation in Japan has now retreated from a decade high 2.4% peak a year ago on the back of high prices for oil, grain and other commodities.
In effect the fall is around 3.5% from that peak, with much of the fall coming from a combination of falling prices from the recession’s impact, and lower prices for co
