Oops, but aren’t the US, Chinese and Japanese economies, the world’s three biggest, suddenly in synch again, on the downside as economic growth slows?
The question is being asked after Japan’s economy hit stalling speed in the second quarter, confounding even the most pessimistic forecasters, and raising the prospect that it could be the first major economy to suffer a double dip recession.
At the same time, China issued new figures on its second quarter that seem to confirm that it is on the cusp of becoming the world’s second largest economy.
Slowing domestic consumption, government spending and exports all contributed a part to the sharper than expected fall in growth in Japan. Nominal GDP is now back at 1993 levels.
Japan’s economy expanded at an annual 0.4% pace in the three months to June 30, thanks to a sharp fall in both public spending (stimulus) and private consumption. That was down from the 4.4% (revised downwards) annual rate in the first quarter.
It was up just 0.1% quarter on quarter, against 0.6% in the first US estimate (to be cut to around 0.3% in the second next week, according to a flood of new forecasts) and 2.2% in Germany (and 1.1% in the UK).
China’s second quarter growth fell to an annual 10.3% rate from 11.9% in the first quarter.
But the news will spark fears that with the Chinese economy slowing, other Asian economies will feel a chill, such as Taiwan and South Korea, not to mention Australia, as Japan is our second largest export market after China.
As well, after the Fed downgraded its views on the strength of the US economy last week, the world’s top three economies are now starting to slow at the same time (coupled?).
Only Number 4 Germany is growing strongly, and that’s hitched to strong demand from China and the eurozone, where cuts in government spending will start impacting demand later this year.
The estimate for Japan’s second quarter GDP was much lower than any market forecasts which were centered around a 2.3% rate of growth (annual).
The government said second quarter growth slowed from a downward revised 4.4% increase in the January-March quarter (the second forecast for the first quarter was 5%, up from an initial 4.9%).
But deflation continued to drag on economic growth, with the GDP deflator, the broadest measure of price trends, at -1.8% in the June quarter.
That represents a small improvement from the minus 2.8% in the previous quarter, thanks to an easing of the downward pressure on prices.
But it is still deflation and continues to bedevil the domestic economy, impacting on consumption in particular.
So quarter on quarter, growth has fallen from 1.1% in the first quarter to just 0.1%, which is barely alive and bound to be revised.
If it is into the red in subsequent revisions, then there will be fears of a looming double dip.
Consumer spending, which accounts for almost 60% of GDP, was flat in the latest quarter, compared with revised growth of 0.5% in the previous quarter.
But public (government) investment fell almost 13% in the quarter.
From a year earlier, Q2 GDP rose 2.0%, posting the second year on year rise, after rising 4.7% in Q1.
For the whole of fiscal 2009 that ended in March, the economy contracted by 1.9%, down for the second straight year after a 3.7% decline in fiscal 2008.
Exports were up 5.9% on quarter, posting the fifth consecutive quarterly gain after being ahead 7.0% in the previous quarter, while imports rose 4.3% quarter on quarter, marking the fourth consecutive quarterly increase (+3.0% in the March quarter). Price rises for iron ore, coal, gas and copper would have helped boost the value of imports.
In June, the unemployment rate hit a seven-month high at 5.3% and industrial production fell. Now we have some explanation of the downturn that has emerged in the past three months.
