As expected, the Japanese economy fell into recession in the first quarter when economic growth contracted thanks to the devastating impact of the March 11 earthquake, tsunami and then the Fukushima nuclear crisis that still hasn’t been controlled, more than two months later.
Japan faces another weak quarter in the three months to June and hopes of a rebound in the September three months will be tempered by the expected big power shortage in and around the vital Tokyo region in the northern summer.
The government expects a 15% shortfall in power supplies in summer because of the outage at Fukushima and other plants.
That will make a sharp rebound in the September quarter problematic by keeping a lid on production.
For our second biggest export market, its glum news and investors in Australia should be aware and watch resource companies in particular.
In fact the health of the Japanese economy is worse than it seems, the first quarter contraction was much larger than estimated by optimistic economists – GDP fell at an annual 3.7% compared with the market forecast of a 1.9% fall.
But what was completely unexpected was the sharply revised (downwards) fall in the 4th quarter of 2010.
That was estimated at an annual 1.3% fall in the second reading in April.
Yesterday that was lifted to a large 3% annual rate which was larger than any estimates.
For the whole of the fiscal year that ended March 31, the economy grew 2.3%, mainly due to government stimulus which boosted spending on cars, whitegoods, housing, consumer products such as tobacco and green goods such as solar panels and the like.
Set against that, the fall in the March quarter doesn’t look too bad, but economists say the data for retail sales, production and investment from January and February (and exports) suggest the economy was growing, not contracting, before the quake struck on the afternoon of Friday, March 11.
Quarter on quarter the fall was 0.9% from the December quarter against the market forecast of 0.5%.
The first estimate for the December quarter saw growth contracting by 0.3% quarter on quarter that was revised down to minus 0.8% in yesterday’s report.
The Bank of Japan is expected to keep monetary policy steady when it winds up its monthly two-day meeting later today.
In the first quarter, falling domestic demand reduced growth by 0.8 percentage points while net external demand shaved growth by 0.2 percentage points.
Nominal GDP was down 1.3% quarter on quarter. Below expectations for an 0.7% decline following the downwardly revised 1.1% fall in the last quarter of 2011.
Industrial production fell 15.3% in the month of March, retail sales were lower, car sales fell by 60% for some types, beer sales dropped 10% and fast food sales were lower (but have started recovering).
Japan’s trade surplus fell by 34.3% in March compared with the same month a year ago as the quake impacted exports in particular.
Public investment fell 1.3%.
Exports grew 0.7% on robust growth in other Asian economies, especially China, with imports up 2% thanks to higher oil, coal, iron ore and other commodity prices.
Overall, trade pushed GDP lower by 0.2%, while domestic demand subtracted 0.8 % from the growth rate.
The GDP deflator, a measure of inflation, lost 0.4%, confirming that Japan remains stuck in a deflationary trap.
Consumer prices excluding fresh food and energy costs have dropped every month for the last two years, underscoring the deflationary pressures that have sapped consumer demand.
Supply chain disruptions, especially in cars and electronics of all types stemming from quake and tsunami, caused capital spending to drop for the first time in six quarters.
Corporate capital spending fell 0.9% against a forecast fall of 1.2%.
And personal consumption fell 0.67% as Japanese consumers cut spending in the wake of the disaster.
It had fallen in the 4th quarter of last year after several tax incentives to buy certain products expired at the end of September.
Forecasts from some economists say the economy could contract for a third successive quarter in the three months to June with estimates around 0.8% (quarter on quarter) and an annual rate of 3.3%.
A sharp rebound is forecast from the September quarter onwards.
More than 24,000 people are dead of still missing two months on from the March 11 disasters and there are reports this week that the government is planning on a 10 year recovery plan, with local governments across the country committed to taking rubbish from the stricken north east coast for at least five years to burn or bury in their waste disposal systems.
The waste disposal systems of the local governments in the north east coastal areas simply do not have enough capacity to get rid of the millions of tonnes of rubbish.
Japanese cement companies will also use the rubbish as fuel in an effort to get rid of it and some debris will be crushed and used in cement and concrete.
Corporate profits have already taken a hit thanks to the plunge in production in the last 20 days of March.
Car companies, led by Toyota and Honda, saw profits vanish or severely cut.
The companies say production is gradually improving. Toyota expects to be back at pre-quake levels towards the end of the September quarter, Honda a little later in the year.
Nippon Steel Corp reported its first net loss in six quarters in the three months to March, after the quake closed plants, cut supply chains and caused power shortages.
And a final caveat, Japanese GDP
