Posted by: Kenji Hall on May 20, 2009
How bad is the recession in Japan? Today, the government announced that from January to March the economy shrank 4%, compared to the fourth quarter of 2008, for an annualized rate of 15.2%. It was Japan’s biggest fall in gross domestic product on record. The release coincided with the government’s downward revision of its GDP numbers for the fourth quarter to a 14.4% contraction, from 14%.
So you would expect economists to be predicting Armageddon here. But most simply shrugged at the headline figure. That’s because dismal numbers were to be expected from Japan Inc. Slammed by the sudden drop in demand for their products overseas, big manufacturers took swift action, halting production lines, laying off factory workers, and clearing out their warehouses of unwanted products and parts.
The thing about GDP data it’s a reflection of the recent past—not a snapshot of what’s happening now. Economists expect the outlook to brighten, with second-quarter GDP likely to show an improvement. Goldman Sachs’ economist Tetsufumi Yamakawa predicts Japan will get a boost from a rise in Japan’s exports to China this quarter and another lift when government stimulus spending kicks in later this year. As my colleague, Ian Rowley, and I wrote last month, some tech companies and car makers are already preparing for an upturn in orders.
The problem is, Japan’s economy could falter again at the end of this year or early next unless overseas markets turn around or consumers at home loosen their purse strings again.
Will consumers pick up the slack? It’s hard to tell now but the numbers aren’t promising. Private consumption was down 0.8% in the fourth quarter of 2008 and 1.1% in the first quarter of this year. Deutsche Securities expects one measure of workers’ pay (or “nominal compensation of employees” in the lexicon) to continue falling through the rest of this year, as companies slash bonuses and fire employees. And household savings rates in Japan are even lower than in the U.S., a trend that Goldman Sachs expects to continue at least until 2010. Don’t be surprised if Japanese lawmakers start huddling again to debate how much more taxpayer money they should spend to keep the economy from worsening.