Tuesday 4 November 2008

Japan seen slipping into recession in Q3

Japan's economy has joined much of the developed world in a recession, economists polled by Reuters say, with GDP seen contracting for a seco
nd consecutive quarter as the financial crisis hits exports and capital investment.

Economists had previously expected Japan to eke out weak growth in the third quarter, but sliding exports to crisis-hit countries and related weakness in company spending removed two key areas of growth in the world's second-largest economy.

Much of the developed world is now in recession, officials and economists say, based on the most common definition of two consecutive quarters of shrinking gross domestic product (GDP), and economists see little sign of improvement anytime soon.

Newly issued weak global vehicle sales figures for October, issued on Monday and Tuesday, add to the problems for Japan, where the central bank trimmed interest rates and slashed its growth forecast on Friday, saying it saw almost no growth for Japan in the year to March 2009.

"The Japanese economy entered a downturn phase from early this year and the trough is likely to deepen as the financial crisis further impacts the real economy," said Takuto Murase, an economist at the Japan Research Institute, who saw a further contraction in the fourth quarter.

Murase said exports would further weaken in light of deteriorating economic conditions in the United States and Europe and a slowdown in emerging economies, and as companies become more cautious in capital investment. The median forecast from a Reuters poll of 11 economists estimated the Japanese economy dipped at an annual rate of 0.2 percent in the July-September quarter, after shrinking at an annual rate of 3.0 percent in April-June -- its biggest fall in seven years.

Preliminary gross domestic product data for the third quarter is due out on Nov. 17 at 8:50 a.m.
Tokyo stocks had their worst month in history in October, with the benchmark Nikkei average <.N225> falling 24 percent in the wake of the economic woes and a sharp rise in the yen, as investors unwound investments based on borrowed Japanese currency.

The Nikkei rose 6.3 percent on Monday, reflecting a weaker yen in recent days. Late last month the dollar hit a 13-year low below 91 yen, adding to fears for the repatriated profits of Japan's big exporters, but has since recovered to around 99 yen.

RECESSION BLUES The European Commission said on Monday that the euro zone is already in a recession, and the United States contracted at an annual rate of 0.3 percent in the third quarter, the sharpest rate in seven years. While Japan's major banks have been largely untouched by the crisis, and have even invested in weaker rivals to expand overseas, the economy has not escaped the fallout from the global cash squeeze.

Source: EconomicTimes

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