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May 26, 2009

[SSJ: 5580] Japan's Recession in Perspective

From: Richard Katz
Date: 2009/5/26

The latest GDP figures show a recession of truly stunning proportions in Japan.

1) Japan is having, by far, the worst recession among the rich countries in the OECD. In the four quarters from April-June 2008 to January-March of this year, according to the OECD, Japan's GDP fell a total of 9.4%--the kind of fall we expect to see only in emerging countries.
Japan's fall was double the 4.5% fall in the European Union and almost three times the 3.6% fall in the US in the three quarters of its recession so far. The second worst fall was Germany at 7.1%.

2) According to the Cabinet Office, the recession so far has wiped out around 75% of Japan's entire 14% gain in GDP since the low point of the last recession in the fourth quarter of 2001. Even more stunning, Japan's GDP today is only 2.3% above the level first reached a dozen years ago in the first quarter of 1997. 2.3% is the kind of growth one hopes to see in a single year, not in 12.

3) The plunge in business investment, which had accounted for about a third of growth during the recovery, has erased about 90% of its entire 33% growth from the end of the last recession. It is, once again, below the peak first hit at the end of the bubble nearly 20 years ago.

4) Exports, the other main driver for growth, have also taken a huge hit. During the recovery, they almost doubled (an 87% gain) to reach 92 trillion yen. Now, they fallen by almost 40% to 58 trillion yen. The trade surplus, which had exploded to 5.7% of GDP, is back down to only 1%.

5) It is hard to find economists who expect a robust recovery in the next couple years. Some suggest that, after a couple quarter bounce stemming from the Aso administration's stimulus package, the economy will again retreat a bit in 2010 unless there is yet another stimulus package. Thus, after a 4.5% fall in GDP from the fourth quarter of 2007 to the fourth quarter of 2008, the IMF's April forecast projected that Japan would suffer a further 2.7% decline in 2008-IV through 2009-IV and then still another 0.6% tumble during 2009-IV to 2010. Japan is the only major rich country for which the IMF projected negative growth during the last period.

6) The main silver lining in the cloud is that the worst does seem to be over, both globally and in Japan.
Forecasters are divided on whether April-June will show a bit of a rebound, but, as noted above, even the near-term optimists fail to see any vibrant recovery in 2009-2010.

So I guess we can see why the big issue being debated by the DPJ and LDP is hereditary seats in the Diet.

Richard Katz
The Oriental Economist Report

Approved by ssjmod at May 26, 2009 12:48 PM