The month of October continues to shatter economies around the world, or rather the events of September and the 15 months leading up to it, continue to do so.
The failure of Lehman Brothers and the spate of rescues in the US and Europe in the last two and a bit weeks of September, should now be seen as the major dislocation of the credit crunch, which started as the US subprime mortgage debacle.
Not even the outbreak of the crunch in August 2007, nor the bailout of Bear Stearns in March of this year, have come close to causing the global economy, and its constituent economies around the world, the same sort of devastating blow.
Bear Stearns was a warning, but the Fed and JPMorgan pulled us through, but no one thought that when Lehman Brothers was tottering, that it would go. But go it did, down the tube to devastate financial markets, confidence and set off a chain reaction of events still clanging their way through financial markets.
US retail sales, new home starts and new home building permits all down by a record amount, or to record lows in October; US unemployment soared 254,000 (to be revised upwards) and still thousands of jobs are going every day across the US, and increasingly in Australia and Europe and parts of Asia.
Now Japan, which is already in recession, with two consecutive quarters of mild contractionary activity, faces a more damaging slump.
The engine for the country is its export machine, allied with the huge domestic manufacturing sector set up to arm and replenish the Toyotas, Nissans, Hondas Canons, Fujitsus and other industrial giants.
If the engine splutters, the Japanese economy backfires: it’s what has been happening at increasing pace since mid year: a fall in August, a small recovery in September, and now the worst slump in almost seven years.
The Japanese Finance Ministry reported yesterday that exports fell 7.7% in October from October 2007.
That was the biggest drop since December 2001 as the US recession was deepening.
That was after a rise of 1.5% in September.
It follows the first effective deficit in 26 years, which was logged in August this year, when the economy was hit by high import prices and weak demand for Japanese goods overseas.
The October figures were the first deficit for the month in 28 years, reflecting a fall in exports to the rest of Asia.
Shipments to China, which had supported demand even as shipments to the US and Europe had declined, fell 0.9%, marking the first decline since May, 2005.
Exports to the US and Europe posted double-digit declines year-on-year.
Slumping car exports, shipments of consumer electronics, industrial foods, trucks, computers: a wide range of products have been hit by the slump in the US and European economies in particular.
On top of this, the rising yen continued to hurt exports: it’s risen 22% against the euro since September and around 9% against the US dollar in the past couple of weeks.
Although the slump in US car sales is hurting, so too is falling demand in Japan, and in other markets.
That’s why Toyota is expecting to earn at best $US200 million in profits in the six months to next March (but that now looks like a loss). Nissan this week said its second half profit would be eliminated by the slump in the US and the higher yen.
Growth in China, Japan’s largest trading partner, is slowing (hence the huge reflation package revealed last week and three rate cuts in two months).
So it shouldn’t have been a surprise that the level of exports to China fell for the first time in three years, or that exports to Asia as whole fell 4% in the month.
Shipments to Europe plunged 17.2%, the biggest fall since December 2001 and by 19% to the US (although they were down 22.8% in August).
Imports rose 7.4% (despite the higher value of the yen and the continuing fall in oil prices).
That gave Japan a $US666 million trade deficit, the third this year, a rare event for the export machine.
