As expected Japan’s economy contracted in the 4th quarter of last year, but it was an outcome that should be ignored.
In fact the contraction of 0.3% from the September quarter (1.1% annual) was less than the 0.5% drop forecast, and due to the sharp fall in October after the Japanese government ended a number of stimulus measures on September 30.
The decline in real gross domestic product will not undermine growing confidence that Japan’s recovery is strengthening.
The upshot of the contraction though was to confirm Japan’s fall to third place in the ranking of the world’s major economy, with China now second and growing much faster.
China’s economy had already surpassed Japan’s on a quarterly basis but Japan’s nominal gross domestic product for 2010 was 479.223 trillion yen ($US5.474 trillion), compared with the $US5.879 trillion that China reported last month.
But Japan’s real GDP expanded 3.9% for the year, despite the fourth-quarter contraction, because of the impact of price deflation.
The fall in the December quarter was the first economic contraction since July-September 2009, when the economy shrank by 1.2%.
It was a sharp turnaround from the previous quarter’s revised annual 3.3% growth.
Private consumption, which makes up about 60% of GDP, fell 0.7% from the previous quarter, after a 0.9% increase in July-September.
That swing was due to the surge in purchases of cigarettes, cars and whitegoods ahead of the ending of some stimulus measures on September 30.
That dragged forward demand from the 4th quarter and consumer demand fell.
Capital expenditure rose 0.9% from the previous quarter, slower than the 1.5% rate in July-September.
External demand, or net exports, shaved 0.1 percentage point off GDP, with the yen’s 15-year high against the US dollar during the period cutting exports.
But that’s not to say exports haven’t regained momentum.
Figures for November and December clearly show that with Japanese companies boosting sales into Asia and China especially.
Industrial production has risen faster than expected, the deflationary grip on the economy seems to be easing month by month and employment has perked up.
Consumer demand and retail sales remain sluggish, but from the flow of data in the past two months, the Japanese economy isn’t heading for a recession.
Most economists expect a solid return to growth in the quarter ending March 31 (which is also the end of the Japanese financial year).
The encouraging signs prompted the government to upgrade its economic assessment last month and economists now rule out any more monetary easing by the Bank of Japan.
Meanwhile more signs that China’s still strongly growing economy is dragging in more imports and cutting the trade surplus.
China’s trade surplus fell more than expected in January for the third month in a row.
The surplus contracted by more than 53% in January, but China’s exports were up a still very strong 37.7% in January from January, 2010, but imports jumped by 51%.
That left the country with a trade surplus of $US6.5 billion, compared with $US13.1 billion in December.
That was the smallest surplus in nine months.
Much of the reason for the higher import bill was higher prices for oil, copper, coal, iron ore and a host of other import commodities.
IN some cases there were higher quantities of commodity imports as well.
Coal and iron ore prices rose because of the impact of floods in Australia and Brazil. Oil rose close to $US100 a barrel, a two year high and the prices of soybeans; corn and wheat were all solid.
China has been importing more grains and other commodities (such as sugar and cotton) to try and keep a lid on domestic price pressures.
China has been trying to shift its economy towards greater reliance on consumption and less on exports, in part to meet criticism that the economy is being run for the benefit of China and not its trade partners.
The news will help ease pressure on China ahead of the Group of 20 Finance Minister’s conference in Paris later this week.
China will report its January inflation data later today.
Western analysts say the annual inflation rate is tipped to be around 5.3% or 5.4% up from 4.6% in the year to December and 5.1% for the year to November.
But analysts in Beijing saw the rate will be 4.9% because of changes ton the way the CPI is worked out (the changes have the effect of lowering the weighting of the volatile fresh food group).
Economists also pointed out that with the Chinese Spring Festival and Lunar New Year falling in early February, much of the surge in imports would have been accounted for by companies forward ordering.
For example iron ore imports hit a record 68.97 million tonnes in January, the highest ever, as steel mills bought enough ore to cover the week or so of holidays at the start of the month.
