Japan’s Economy Will Take Time to Recover

In the first quarter of 2009, Japanese GDP shrank at 14.2 percent annual pace bringing down the world’s third largest economy to its 2003 size. Lately, things have improved somewhat, but although this contraction is less then previously estimated, at Trading Economics we think it’s too early to talk about a rebound in the Japanese economy.

Indeed, recently we start seeing some signs of easing in the Japanese economy. For instance, industrial production for May increased for the third consecutive month on the back of inventory liquidation and revived demand in China, where the government is spending $586 billion on infrastructure projects. Also, Japan’s stimulus package seems to be working. For example, sales of electronics are up by 18 percent since the government introduced a program to encourage consumers to buy eco-friendly products. Moreover, tax breaks on energy-efficient vehicles helped Honda post higher sales in the last months. More importantly, consumer confidence rose to a 14-month high in June and loan guarantees for smaller businesses prevented many bankruptcies.

Yet, exports which have been the main driver of the Japanese economy over the past few decades, are still deteriorating on the yearly basis due to weak global demand and a strong yen. Indeed, shipments abroad dropped 40.9 percent in May from a year earlier, more than April’s 39.1 percent decline, and exports fell 0.3 percent, from a month earlier, the first deterioration since February. Looking further, with manufacturers using about half their productive capacity, corporate profits and business investments are falling and there are more and more jobs cuts. In fact, Japan’s unemployment climbed to 5.2 percent in May, the highest rate in 5 years. All of this combined may cause the economy to start shrinking again as the effects of the stimulus wanes.

Anna Fedec, contact@tradingeconomics.com
6/13/2009 2:45:21 PM