Japanese Recession Could Be Short-Lived, Economists Say

Asian Economy | Written by CEP News | Nov 17 08 01:40 GMT |

(CEP News) - Economists, along with the Japanese government, have confirmed a decline in Japanese growth has sent the world's second largest economy into recession. Still, some economists say even if Japan's economy contracts again in the fourth quarter, the downturn might not last long. Following the release on Monday morning (Sunday night EST), Japanese Economics Minister Kaoru Yosano confirmed the economy's recessionary state. He said the downtrend will continue, and could be severe. Japan's preliminary growth domestic product declined by 0.1% in the third quarter, against expectations for a flat reading and the second quarter's downwardly revised 0.9% drop. The original figure came in at -0.7%. "The sun has officially set on the world's second largest economy's longest post-World War II expansion," said Matt Robinson, economist with Moody's economy.com Robinson said that weakening demand from the U.S. and Europe has hit Japanese exports hard in the third quarter, and export-driven businesses in Japan have responded by cutting back on spending. He said the fall in exports and capital expenditure "has deprived the economy of the twin engines of economic growth it has relied on for most of the past decade." David Cohen, economist with Action Economics agreed the contraction can be blamed on falling exports, and said it looks as though the fourth quarter will record negative growth as well. "If their trading partners are slowing down they'll feel the pinch," he said. He said dismal indicators around the world show the global economy is slowing, and that Japan is no exception. Nevertheless, Cohen said, "it doesn't have to be a very severe recession." Cohen said although their stock markets have been "hammered" Japan might be less vulnerable to the global downturn because at home, Japanese business and household balance sheets look pretty good. Cohen said growth should recover by the middle of 2009. Julian Jessop shared Cohen's positive outlook for the domestic economy and its effect on GDP, and said while "the full impact of the slump in the rest of the world has yet to feed through," Japanese household spending and employment data have been better than expected. He said as inflation falls towards the end of the year and the beginning of next, domestic demand will rebound. "We continue to expect Japan to hold up much better than other major economies in 2009 and recover relatively strongly in 2010," he said. Robinson noted the same positives, and recognized the household consumption and residential investment components of GDP saw an increase in the third quarter. Neverthless, Robinson said, recent indicators such as the tertiary index released today point to declining consumer sentiment and spending. "This is not a great sign when growth in the household sector was the only thing preventing the Japanese economy from recording an even larger contraction in GDP during the third quarter," he said. Economists at DBS agreed that the positive consumption and residential investment figures are no beacon of hope. They said private and business spending will only get worse, with fiscal stimulus from the government only able to provide a "mild recovery" in private consumption by the first quarter of 2009. "The synchronous external slowdown will also start to bite. Since August, Japan has been reporting a trade deficit," they said. Economists at DBS expect another contraction in the fourth quarter and a "mild pick-up" in the first quarter of 2009. By Megan Ainscow, mainscow@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it CEP Newswires - CEP News © 2008. All Rights Reserved. www.economicnews.ca The Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News. A copy of CEP News disclaimer can be found at http://www.economicnews.ca/cepnews/wire/disclaimer.