Posted by: Ian Rowley on August 18, 2008
The last quarter wasn’t a good one for Japan’s economy. According to government figures released last week, the world’s second largest economy contracted by 0.6% (2.4% annualized) in the April-June quarter, a nasty turnaround after registering 0.8% growth in the previous three months. Predictably, the slowdown was blamed on economic weakness in the U.S. and Europe and Japan’s habitually disappointing consumers.
But things could have been much worse if it wasn’t for emerging markets taking up the slack. Indeed, today’s Nikkei newspaper highlights just how important countries including Brazil, China, India and Russia (commonly known as the BRICs countries) and other fast-growing nations are to Japan’s corporate earnings. According to the paper, in the April-June quarter, emerging market nations accounted for 23% of operating profits at Japan’s top 50 manufacturers. For the first time, the figure was more than the U.S. and Europe which combined only accounted for 19% of earnings.
Just as impressive is the speed with which Japanese companies are increasing their earnings power outside the mature, advanced economies. In 2004, the biggest 50 producers relied on emerging markets just 12% of operating profits.
Of course, part of that is because the economies of U.S. and Western Europe are struggling, slumping 44% and 17%, respectively, compared to the same three months a year ago. By contrast, earnings made in emerging markets surged 21% during the same period, the paper notes. That demand, assuming it holds up reasonably well, is one reason why many economists in Tokyo, reckon it may skirt recession this time around. That wouldn’t have been the case a decade ago.