Japan: Gloomy GDP Data

Seems there is no end to the tales of woe for Japan these days.

The Business Times of Singapore dated 10 December 2009 has this sad story of challenges and fears for the second largest economy of the world.

The size of the challenge facing Japan in seeking to ward off renewed economic recession became more apparent yesterday as revised data showed that gross domestic product expanded by a fractional 0.3 per cent in the third quarter of this year rather than by the 1.2 per cent previously announced. [What a shortfall!]

This means that on an annualised basis, the growth of the world’s second largest economy was just 1.3 per cent during the July to September period rather than the robust 4.8 per cent stated originally.{Robust?]

A major factor behind the downgrade was a 2.8 per cent drop in private capital expenditures during the third quarter whereas initial data had suggested that spending grew by 1.6 per cent during the period.[Private sector is profit driven as so perhaps this gloom doom economy has made them more risk-averse.]

This marked a sixth consecutive quarterly decline in investment.

Most of the revised third-quarter GDP growth came from exports.

The government on Tuesday announced a 7.2 trillion yen (RM276 billion) package of measures to help shore up the economy, even though the level of government debt makes it increasingly precarious to launch such stimulus.

The package was equal to 1.5 per cent of GDP and centered on steps to boost purchases of fuel-efficient cars and consumer electrical equipment as well as aids to house purchases and employment subsidies as well as grants to local governments to offset a drop in revenues.

Public subsidies for the purchase of certain goods helped maintain third-quarter consumption but at the cost of raising the fiscal burden of the government whose outstanding debt to GDP is now close to 200 per cent. Employment subsidies are another source of fiscal strain.[Imagine 200% of GDP!]

Including financial guarantees for smaller firms, the total package was worth some 24 trillion yen but the reaction of business leaders and others has been to suggest that the stimulus was not big enough to counter downward pressure on the economy.

The Bank of Japan appears almost certain to come under increased political pressure to step up monetary easing as a result of the sharp downgrade of third-quarter GDP figures, analysts suggested yesterday.

Banking Minister Shizuka Kamei, who heads the small New People’s Party,demanded yesterday that the government avoid spending cuts next year despite burgeoning public debt.

Kamei has also demanded that the BOJ step up purchases of Japanese Government Bonds (JGBs) to help finance public spending.

The OECD is also urging the central bank to step up JGB purchases as a means to inject more financial liquidity into the economy and to counter deflation.[Yes, get the people to buy bonds that pay good dividends. That's the way to take act inactive funds being hoarded away in the bank's fixed deposit accounts!]

The BOJ’s latest quarterly survey of business conditions in Japan — known as the tankan — is due to be published next Monday and is expected to show that the rate of improvement in business confidence revealed by recent tankan surveys is weakening.'

How sad!