The Japanese economy has grown for the first time in more than a year, ending the worst recession the country has encountered since the Second World War.
The Government’s Cabinet Office said yesterday that Gross Domestic Product rose at an annual rate of 3.7% in the second quarter after the 11.7% annual plunge in the first quarter.
Japan’s economy grew for the first time in five quarters as a boost from government spending, and higher exports and consumer spending helped the country climb out of its worst postwar recession.
Growth rose 0.9% from the first quarter, slightly lower than the 1% estimate from the market.
The news didn’t enthuse sharemarket investors: Tokyo’s Nikkei fell 3.1% in the wake of the positive news.
That was driven by fears the rebound had no longevity, as well as the continuation of the sell-off in China where the Shanghai market ended down 5.8%, the biggest one day fall since last November.
That sell-off continued in Europe and the US overnight with big falls in the UK and American markets.
Improving Japanese exports contributed heavily to the bounce in the economy, jumping 6.3% from the previous three months with net exports, (overseas shipments minus imports). That added 1.6 percentage points to quarter-on-quarter growth.
But the major factor was public spending.
The Japanese Government has so far allocated around 4% of GDP to its stimulus program and as a result, public investment expanded 8.1%, but private consumption rose 0.8%.
But it’s welcome news. After this report we now have the eurozone improving to a negative growth rate of just 0.1% in the second quarter, thanks to positive growth of 0.3% in Germany and France, but a fall in Spain of 1%.
The US economy shrank at an annualized rate of 1% in the second quarter; the UK was down 0.8% in its first estimate.
China grew by 7.9%; Singapore, Hong Kong and South Korea are all seeing positive growth.
But the rebound was weak and the fact that exports were linked to China and some restocking in the US and other markets is another medium term negative.
Business investment, which makes up about 15% of the economy and is the main driver of growth, along with exports (they are closely linked), fell 4.3% in the June three months.
That means there will be no help for the wider economy’s chance for a sustainable recovery from the corporate sector for at least the next three quarters.
Consumer spending, which accounts for more than half of the economy (But 70% in the US), rose 0.8%, adding 0.5 percentage point to the expansion.
That was due to the Government $263 billion in stimulus spending that has heavily targeted households (lower road tolls, one off cash bonuses and subsidies for buying more greener cars).
Bank of Japan Governor Masaaki Shirakawa has warned that the recovery may not be strong and there’s no guarantee that demand for the country’s products and services will gain momentum.
The weakness of consumer demand in the US is a sign that the big Japanese consumer products groups will struggle to regain sales and earnings for the best part of the next year at least, even though their results will improve,
China’s boom is dragging in goods from the region (as we in Australia can testify) and why Singapore, Hong Kong and South Korea are all doing better.
The news that Japan is back enjoying positive growth means the Asia-Pacific economies are all enjoying positive growth, unlike Europe and the Americas.
Nippon Steel and other companies, such as Toyota and Honda, Sony and Matsushita, are slowly bringing back idled factories and other facilities.
But Nippon Steel is still running 25% under its rated capacity, meaning it won’t be in the market for major investment spending, not until other big spenders start splurging.
Unemployment and inflation are moving in opposite directions and pressuring each other in doing so, retail sales are weak (apart from the spending coming from the stimulus, which will disappear soon anyway).
Still, the rise in consumer and business confidence is definitely a positive in the rebound (As we have found here in Australia)
According to a survey released Sunday by the Kyodo news agency, two thirds of big Japanese companies expect the country’s economy to recover by the middle of 2010.
Of 108 firms polled, 71 expected a recovery by the middle of 2010. Twelve of them said the economy was already recovering, 15 expected the turn to come in the second half of 2009 and the 44 others in the first half of 2010.
Kyodo attributed the optimistic outlook to improved business results sparked by cost-cutting, rebounds in production and inventory adjustments.
However, annual gross domestic product was expected to shrink 3.4% in the financial year to March 2010, according to the central bank’s latest forecasts.
The bank also forecast GDP growth of 1.0% for the 2011 financial year. But deflation is not expected to disappear until that year, which will put pressure on retail sales and private consumption generally.
