Forget slowing China and what it means for Australia, the real disaster for this country is the accelerating slump in Japan and South Korea, which buy more of our raw materials collectively than does China
Figures from China showed that growth slowed to 6.8% in the December quarter, down from 9% annual in the September quarter, giving a 2008 growth figure of 7%, sharply down from the 12.9% (in the recently revised figures.
But Japan is heading for a crunch: exports plunged a record 35% in December while in South Korea the economy contracted an annual 3.4% rate in the December quarter, the worst since the Asian crisis of 11 years ago.
China accounted for 14.9% of our exports in 2007-08 (and was one of the fastest growing markets with a total value of $26.9 billion).
Exports though to Japan amounted to $34.9 billion (19.3%) and South Korea was third with $14.9 billion, or 7.9%.
So while the concentration on the impact of a slowing China is understandable, the impact on our exports of a severely recessed Japan and a sliding South Korea will be much greater.
Many economists believe the Chinese economy will expand by no more than 5% to 6% in 2009, which would be the weakest performance since 1990: but compared to Japan and South Korea, it is still strong.
Others expect the government to hit its target growth rate of 8% as the $US585 billion stimulus package from last year and much easier monetary policy kick in (two interest rate cuts and an easing on bank lending, plus a series of export rebates).
The slump in China will get the headlines, but at least the growth is positive. Not so in Japan and South Korea. Quite simply is dismal news and bad for Australian exporters.
The figures were consistent with recent data showing falling power consumption and back-to-back declines in both exports and imports as the bottom fell out of the world economy.
China’s steel industry slowed in the last few months of 2008, but still topped the half a billion tonne mark, the first country in history to produce that much steel.
Besides the terrible fall in exports, Japanese business sentiment dropped sharply. There’s just no good news there for anyone.
Both reports came as the Bank of Japan met for a second day to consider policy changes.
Rates have been cut as far as they can go (0.1%) and the central bank now has to consider something more radical, such as following the US Fed into a more deliberate policy of quantitative easing by lending money directly to banks, companies and consumers.
The twin reports added to expectations that Japan faces a long and deep recession.
On top of this has been renewed strength in the yen against the dollar (which in turn has firmed sharply against the euro and the Aussie dollar).
The US dollar as around 87 yen: at that rate it’s hard to see any of Japan’s big but hurting export giants (Toyota etc) making any profits at all in exporting at reduced levels to the Americas.
The likes of Toyota are forecasting a huge loss, the first for years, as a result of the slump in exports and in markets like the US. Honda, its rival, won’t be far behind.
Thursday night, Sony, another big name in Japanese business, said it would lose $US2.9 billion in the year to March, the worst result in 14 years.
According to a business confidence survey from Reuters, released yesterday, Japanese manufacturers’ confidence is at a new record low and sentiment in the service sector sentiment dropped to a level not seen for seven years.
The slide in exports left Japan with a trade deficit for three months in a row, despite recent falls in oil and other commodity prices. The 35% fall in exports was deeper than the 30% forecast by various polls in Tokyo ahead of the news.
The reasons for the sharp slump were not hard to find: exports to the US fell for a 16th consecutive month, while shipments into Asia, which had been holding up well in comparison, dived sharply.
Shipments into the recession-hit US fell 36.9%, with car movements slumping.
Exports to Asia dropped 36.4%, with those to China down 35.5%: plunging sales of cars and electronics goods and parts helped pull shipments lower.
Asia had been accounting for more than 40% of Japanese exports up to when the drop intensified from September onwards.
But shipments into Europe plunged more than 41% as erozone economies, lead by Germany, fell deeper into recession.
The UK economy is weakening at a faster rate and it; Denmark and Ireland are also losing their taste for imports from Japan.
Imports dropped 21.5% (well above the 16% forecast from the market) as oil and other commodity prices continued to weaken. The 320.7 billion yen ($US3.6 billion) deficit was the third in a row.
But import volumes are falling, a sure sign of recession as demand is being cut by the sinking economy and weak order books from importers and processors.
Factory output fell 8.5% in November alone, to be 16.6% lower than the same month of 2008. That’s the stuff of a very intense slump.
The Bank of Japan last month cut interest rates to 0.10% from 0.30% when it was clear the recession was deepening.
Since then the fall has intensified with machinery orders and industrial production falling faster than previously believed.
The government has been unable to pass a stimulus package that could help encourage domestic spending in the absence of export demand.
Prime Minister Aso so unpopular (as is his Government) that he can’t get agreement from the opposition-led upper house to spend 10 trillion yen ($US111 billion) to boost companies and households.
That is an amazing state o
