Japan's economy contracts sharply in Q4 '08

[Ma Deuce]

http://www.canadaeast.com/business/article/573369

Japan economy shrinks at fastest pace in 35 years

By Tomoko A. Hosaka, THE ASSOCIATED PRESS

2009-02-15 22:26:00

TOKYO - Japan's economy contracted in the fourth quarter at the fastest pace in 35 years as a collapse in global demand continues to drain the life from the world's second-largest economy.

Japan's gross domestic product, or the total value of the nation's goods and services, dropped at an annual pace of 12.7 per cent in the October-December period, the government said Monday.

That's the steepest drop for Japan since the oil shock of 1974. It far outpaces declines of 3.8 per cent in the U.S. and 1.2 per cent in the euro zone.

The contraction underscores the vulnerability of Asia's export-driven economies during global downturns and point toward more cuts in jobs, production and profits in the coming months.

A survey of economists by the Kyodo news agency had projected an 11.6 per cent fourth-quarter contraction.

Japan had its third straight quarter of decline. The GDP fell 1.8 per cent in the July-September period.

Fourth-quarter GDP fell 3.3 per cent from the previous three-month period, and for 2008, it contracted 0.7 per cent - the first decline in nine years, according to the Cabinet Office.

With a rebound nowhere in sight anytime soon, Economy Minister Kaoru Yosano said Japan faces "the worst economic crisis in the postwar era," according to Kyodo.

The three main pillars underlying Japan's emergence from the so-called "lost decade" of the 1990s have crumbled, said Martin Schulz, an economist at Fujitsu Research Institute in Tokyo.

Between 2003 and 2007, Japan's GDP grew an average of 2.1 per cent every year. But the expansion relied heavily on favourable exchange rates, overseas investment and demand, and old industry - steel, cars and chemicals.

"The recovery was unsustainable," Schulz said. "It was built on a major global bubble, and now basically the economy is paying the price."

Japan's real exports plummeted a record 13.9 per cent in the fourth quarter, the government said, as the deepening global slowdown choked off demand for the country's cars and gadgets. Even demand from emerging markets, which earlier had partly offset declines in North America and Europe, began falling sharply in the fourth quarter.

An appreciating yen also hurt the country's exporters, including Toyota Motor Corp. and Sony Corp.

Japanese electronics company Pioneer Corp. said last week it will cut 10,000 jobs globally, joining a growing list of the country's corporate giants scrambling to slash their payrolls. Sony Corp. is shedding 8,000 workers, while Nissan Motor Co. and NEC Corp. are each cutting 20,000.

Japan slipped into recession in the third quarter after its GDP contracted an annualized 3.7 per cent in the April-June period.

A recession is commonly defined as two consecutive quarters of negative growth, though many economists using other parameters say the current downturn actually began in late 2007.

In its latest forecast, the International Monetary Fund predicts Japan's economy will shrink 2.6 per cent this year, outpacing the 2 per cent overall decline it expects for advanced economies.

Media reports over the weekend said Japan may be considering additional measures to shore up its economy with fresh spending likely to top 10 trillion yen (US$109 billion).

Lawmakers are debating a record 88.5 trillion yen (US$963 billion) budget for the fiscal year starting in April. The Yomiuri Shimbun said once parliament passes the budget, Prime Minister Taro Aso - who faces dismal approval ratings - will announce the extra economic measures.

Japan passed a supplementary budget in January that includes a cash payout to taxpayers totalling 2 trillion yen (US$21.8 billion). Aso has championed the idea, saying it will stimulate sagging consumer spending.

Critics, however, have described the handouts as a lavish waste of public money with limited impact.

"With an election coming up, we believe Japanese policy will tend to put priority on boosting approval ratings rather than GDP," said Kyohei Morita, chief economist at Barclays Capital in Tokyo, in a recent report.

Japan's central bank, which lowered its key interest rate to 0.1 per cent in December, has introduced various steps to try to thaw a corporate credit crunch. But there is little it can do to address the unprecedented decline in external demand.

The Bank of Japan policy board is scheduled to start a two-day meeting Wednesday.

In stock markets, the benchmark Nikkei 225 index was down 0.99 per cent at 7,702.24.

I have to admit, even I found that number shocking. Japan seems to be getting hit by a perfect storm as of late: The primary effects of the credit crunch, a sharp reduction of exports as a further effect, and a rapidly appreciating yen (not to mention longer-term problems like thier rapidly graying population, which could bankrupt them on it's own). If this keeps up much longer, I can't see how it won't send them right over the edge, even if their export partners don't go down first. I think we may be seeing a sort of opposite to the collapse in Dubai that was posted here recently, but with an export-based economy vs. a service based one, which seems to illustrate perfectly the need to make national economies as balanced and diversified as possible. Wonder how long it will be before China finds themselves at this point.

[ray245]

If China economic growth ends up in negative numbers, we will be seeing a depression like situation in China. Even with a growth of 8%, China is facing huge problems with providing enough jobs for all the University graduates. Parents who used all of their live savings on their children, and ensure they can have a better future and education.

There are few economies in the world that can be considered balanced on a national level. The global economy by right, can be a balanced economy, if the nations that rely on export-based industries and service based industry are not relying on people spending beyond their means to fuel everyone's economic growth.

Nations like China are catering to people in the US spending beyond their means, that is the problem. If China and rest of the world is catering to people who spend within their means, then most of the world will not be impacted by this great recession.

[Ma Deuce]

If China economic growth ends up in negative numbers, we will be seeing a depression like situation in China. Even with a growth of 8%, China is facing huge problems with providing enough jobs for all the University graduates.

China's economy would outright implode if that happened, because it has essentially become a house of cards that cannot sustain it's own weight without that kind of growth, a condition that cannot be maintained indefinitely. Then again, it's their fault for being so shortsighted as to think that 8-10% growth could go on forever.

There are few economies in the world that can be considered balanced on a national level.

And that is a major problem, and part of the reason we are in this mess. Still, western economies tend to be more balanced than China's; hell even Japan is more balanced, but they've been affected sooner since they've already been in a malaise for 20 years now, while China was booming until recently

The global economy by right, can be a balanced economy, if the nations that rely on export-based industries and service based industry are not relying on people spending beyond their means to fuel everyone's economic growth.

See that only works when you remove human nature and make everyone act in good faith. The world doesn't work that way. China certainly does not trade with the US in good faith, as evidenced by their blatant currency manipulation, something Japan used to do as well before their '89 crash. Besides, if your single-purpose economy has one of it's import or export partners do something to screw themselves over (or worse, deliberately screw you over), you're instantly screwed as well. It is unwise for any nation to willingly place itself so completely at the mercy of other countries. The only way a true global economy can really work is if you also have a global government.

Finally there is still the problem that trade deficits are inherently bad, because they essentially amount to debt. This is why the US sells treasury bonds to China, to pay for it's trade deficit. That cannot go on indefinitely.

Nations like China are catering to people in the US spending beyond their means, that is the problem. If China and rest of the world is catering to people who spend within their means, then most of the world will not be impacted by this great recession.

China enabled and actively encouraged this over-consumption by buying up as many T-bills as they could and lending them back, so US consumers could buy as much of their shit as possible. Don't pretend they don't have some responsibility in this mess.

[ray245]

China's economy would outright implode if that happened, because it has essentially become a house of cards that cannot sustain it's own weight without that kind of growth, a condition that cannot be maintained indefinitely. Then again, it's their fault for being so shortsighted as to think that 8-10% growth could go on forever.

On the other hand, China could be in a worse situation without all the reserves they had earned from their economic boom. I would think of their economic boom as a race against time, before any hope of being able to build up their economy to a second world level is gone, and foreign investments began to drop.

Also, with global warming screwing everyone over, any hopes of being able to afford an industrialization process will become more expensive and harder to initiate.

The current economic recession is bound to happen anyway, and with the rise of economic nationalism, you can forget about developed nations willingly to allow their companies to invest in a 3rd world nation like China.

Stas Bush could be able to go into details but when you compare China to India, China did do a better job at improving the standards of its people. India has been affected by this great recession as well, and with a rapidly growing population that is not proportional to its economic growth, India could end up in a very bad situation as well.

And that is a major problem, and part of the reason we are in this mess. Still, western economies tend to be more balanced than China's; hell even Japan is more balanced, but they've been affected sooner since they've already been in a malaise for 20 years now, while China was booming until recently

However, the global community as a whole, Europe and Asia alike are very dependent on the Americans spending beyond their means. If I remember correctly, the US still imports 60% of the world's exports.

Also, we need to consider the fact that it is very hard for a developing nation to reach the standard of living of the Western world in a decent amount of time by having a balanced economy.

I mean, it seems so easy to say its the developing nation fault for having an unbalanced economy, but think about it for a second. Just what kind of products, besides agriculture products can those developing nation buy from the western and developed world to begin with?

Cars? Televisions? More expensive clothes as compared to clothes made by their own nation? Where is the middle class who can afford all those items, and allow trade to be balanced in a developing economy?

Where are all the lower class going to get their wealth from? From an agriculture industry that is lacking behind the developed world?

In the 20th century, there has been relatively few nations that really managed to break out of the developing nation status. And almost every of those nations achieved it by having an export based economy, such as Japan and the five Asian tigers, Turkey, and Germany after World war 2.

The only other nation that managed to build up its economy from scratch is USSR, and I don't need to tell you how disliked the Soviets are in the western world.

See that only works when you remove human nature and make everyone act in good faith. The world doesn't work that way. China certainly does not trade with the US in good faith, as evidenced by their blatant currency manipulation, something Japan used to do as well before their '89 crash. Besides, if your single-purpose economy has one of it's import or export partners do something to screw themselves over (or worse, deliberately screw you over), you're instantly screwed as well. It is unwise for any nation to willingly place itself so completely at the mercy of other countries. The only way a true global economy can really work is if you also have a global government.

Finally there is still the problem that trade deficits are inherently bad, because they essentially amount to debt. This is why the US sells treasury bonds to China, to pay for it's trade deficit. That cannot go on indefinitely.

True, without any real oversight and regulation that can be imposed and enforced by a international body, market forces is bound to affect everyone in a very bad way. It is the same problem that resulted in the sub-prime crisis and recession in the US.

Right now, both the US and China can be considered as leeches leeching off each other for their economic boom.

On the other hand as well, no nations likes to give in to the demands of a Global power like the US all the time, and the only way to have some sort of leverage is being rich to some extend yourself, and have an huge influence in the global economy.

China enabled and actively encouraged this over-consumption by buying up as many T-bills as they could and lending them back, so US consumers could buy as much of their shit as possible. Don't pretend they don't have some responsibility in this mess.

The mindless pursuit of wealth has always been a problem for all of us. Including China as well. Although to be fair, everyone one of us, you and me alike is at fault for this economic recession.

Everyone is responsible for this mess.

[K. A. Pital]

China's economy would outright implode if that happened, because it has essentially become a house of cards that cannot sustain it's own weight without that kind of growth, a condition that cannot be maintained indefinitely. Then again, it's their fault for being so shortsighted as to think that 8-10% growth could go on forever.

Is that what really exists, or is that what you think Chinese leaders think? And economic implosion has various degrees of damage as I'm sure you know.

And that is a major problem, and part of the reason we are in this mess. Still, western economies tend to be more balanced than China's; hell even Japan is more balanced, but they've been affected sooner since they've already been in a malaise for 20 years now, while China was booming until recently

That's a major problem and part of the Western doctrine. "Globalization", "international division of labour", Ricardian crap about comparative advantage which works in the moment, but fails to bring the necessary result in the long-term timespan. Funny how your own doctrines applied to all other nations created the "global market" and then crashed it.

It is unwise for any nation to willingly place itself so completely at the mercy of other countries. The only way a true global economy can really work is if you also have a global government.

Correct. But the West has been agressively pushing for a global economy regardless. Now you reap what you sow. Everyone who is and was a willing participant in constructing this "international division of labour" is rightfully fucked because he couldn't see beyond his nose.

Don't pretend they don't have some responsibility in this mess.

They do, but do you seriously think an industrializing Third World nation which was for the most part cooperating with the West, which was always the key architect of global economic doctrines, shares as much blame as the major industrialized nations which pushed these doctrines and often just shoved it down everyone's throat? Somehow that doesn't seem right.

[Fingolfin_Noldor]

Actually, quite a bit of the export model came from a small country down south who took the export model and made it the "quick and easy" way to get to the top. There was considerable debate about the export model vs the slow and steady development of India (though the real truth of their slow and steady development really lies in the retarded bureaucracy of India).

But at the core, the problem with a globalised economy was that self-sufficiency was not part of the equation and that for the last few years, the obsessive need for efficiency was so great that it was making it hard for people at the bottom to rise up to the top, hence the rich-poor divide. This divide will be problematic, considering the political upheaval that led to communism, or the French revolution for that matter.

[ray245]

Actually, quite a bit of the export model came from a small country down south who took the export model and made it the "quick and easy" way to get to the top. There was considerable debate about the export model vs the slow and steady development of India (though the real truth of their slow and steady development really lies in the retarded bureaucracy of India).

But at the core, the problem with a globalised economy was that self-sufficiency was not part of the equation and that for the last few years, the obsessive need for efficiency was so great that it was making it hard for people at the bottom to rise up to the top, hence the rich-poor divide. This divide will be problematic, considering the political upheaval that led to communism, or the French revolution for that matter.

There is a limited time frame for one to redevelop a third world nation into a first world nation with an export-based economy. Once economic nationalism arises, you can forget about developing your nation with an export based economy.

Also, isn't the slow and steady India facing a huge problem with its civil infrastructure? Moreover, India is also facing a huge problem with their rich-poor divide as well.

Just a side question, I thought that before the great depression, the US has a export economy as well?

[Fingolfin_Noldor]

There is a limited time frame for one to redevelop a third world nation into a first world nation with an export-based economy. Once economic nationalism arises, you can forget about developing your nation with an export based economy.

You again are not making sense. How did you manage to wave off economic nationalism? China has long had some bits of it, which is why its state industries are still closed off to the world and have been for decades.

Also, isn't the slow and steady India facing a huge problem with its civil infrastructure? Moreover, India is also facing a huge problem with their rich-poor divide as well.

The whole problem with India really can be traced first to the established caste system, to the ridiculously inefficient bureaucracy of India.

Just a side question, I thought that before the great depression, the US has a export economy as well?

A mix, but the US has largely been a service economy. A lot of industries have been destroyed/packed up and moved abroad.

[ray245]

There is a limited time frame for one to redevelop a third world nation into a first world nation with an export-based economy. Once economic nationalism arises, you can forget about developing your nation with an export based economy.

You again are not making sense. How did you manage to wave off economic nationalism? China has long had some bits of it, which is why its state industries are still closed off to the world and have been for decades.

Ah, should have rephrased the sentence better. I didn't say you can wave off economic nationalism at all, as economic nationalism is inevitable. However, there are times where people in the western world are more open to the idea of globalization and times where globalization is looked down upon. The only time you can have a quick and easy solution is when the idea of globalization are favourable with the western world.

Once the western world realise that they need to keep some of their industries back at home and once economic nationalism arises in the western world, China can forget about having huge amount of companies willingly or able to build factories in China.

There is also the fact that poorer nations often end up as the ones that faced more problems whenever there is a economic/energy/food crisis. A nation without a large amount of cash reserve will faced even more problems than a developed nation.

People living in a developed nation that was affected by a recession or depression would worry about their jobs and daily income, while people living in developing or poor nation has to worry about getting enough food everyday. A food crisis for instance would affect people in a developing nation more severely than people living in developed world.

[mr friendly guy]

I am curious as to how people suggest China should develop its economy and bring its citizens out of poverty and give them a standard of living comparable to the West? How would you suggest China try and grow its economy in a similar time frame to what it has done now?

I hear the line about how it should encourage domestic consumption, to which I have to ask, with what? They didn't have much of a middle class (not yet any way), so what else can they do besides selling goods to countries which do consume a lot? Or perhaps people think industrialised countries have got it good, everyone else can go screw themselves? I certainly hope not, but with the glee people have when talking about the economic doom and gloom I wouldn't be so surprised.

[K. A. Pital]

I hear the line about how it should encourage domestic consumption, to which I have to ask, with what?

Subsidies. They are a semi-command economy after all. They can make it so that their people can consume more.

But you are right, industrializing is not easy and if someone thinks that China's leaders are dumb or something for trying to industrialize their nation, that's just ridiculous. The barrier between the industrialized nations and those who failed to industrialize has strengthened after the last large war, and leapovers are very uncommon.

China has much to lose, but also much to gain. If industrializing fails due to the failure of export industries, at least they can later use these industries for domestic production. If they never industrialize, well, they're simply fucked like the rest of the moronic nations who don't understand why exactly having an industrial economy is important.

[ray245]

I am curious as to how people suggest China should develop its economy and bring its citizens out of poverty and give them a standard of living comparable to the West? How would you suggest China try and grow its economy in a similar time frame to what it has done now?

I hear the line about how it should encourage domestic consumption, to which I have to ask, with what? They didn't have much of a middle class (not yet any way), so what else can they do besides selling goods to countries which do consume a lot? Or perhaps people think industrialised countries have got it good, everyone else can go screw themselves? I certainly hope not, but with the glee people have when talking about the economic doom and gloom I wouldn't be so surprised.

Well, you do know that there are idiots who believe that the Chinese does not deserve a living standard comparable to the Western world because of its human rights violation and etc.

But you are right, industrializing is not easy and if someone thinks that China's leaders are dumb or something for trying to industrialize their nation, that's just ridiculous. The barrier between the industrialized nations and those who failed to industrialize has strengthened after the last large war, and leapovers are very uncommon.

Not the mention, the opportunities for any nation to industrialise is getting smaller and smaller each year. If China or India did not try and aim for a rapid growth rate, it will only become harder for them to industrialise at a later date.

[Guardsman Bass]

But you are right, industrializing is not easy and if someone thinks that China's leaders are dumb or something for trying to industrialize their nation, that's just ridiculous. The barrier between the industrialized nations and those who failed to industrialize has strengthened after the last large war, and leapovers are very uncommon.

Technically speaking, China already has pretty impressive industrial output - they're third only to Japan and the United States.

[TheKwas]

China's economy would outright implode if that happened, because it has essentially become a house of cards that cannot sustain it's own weight without that kind of growth, a condition that cannot be maintained indefinitely. Then again, it's their fault for being so shortsighted as to think that 8-10% growth could go on forever.

Correct me if I'm wrong, but is it really the Chinese leaders' fault that their economy needs 8-10% growth in order for their labour markets to clear? Isn't the alternative is simply telling all the rural and Western residents that they're not allowed to emigrate to the coast anymore and they have to stay in their villiages?

[K. A. Pital]

Technically speaking, China already has pretty impressive industrial output - they're third only to Japan and the United States.

Oh, but the overall output isn't what shows the relative progress of a society - the industrialization per capita is more important. That's why such comparisons aren't valid. A smaller nation - say, Germany, or even midgets like post-Soviet republics, might have a smaller industrial output, but greater industrialization per capita than China.

[Guardsman Bass]

Technically speaking, China already has pretty impressive industrial output - they're third only to Japan and the United States.

Oh, but the overall output isn't what shows the relative progress of a society - the industrialization per capita is more important. That's why such comparisons aren't valid. A smaller nation - say, Germany, or even midgets like post-Soviet republics, might have a smaller industrial output, but greater industrialization per capita than China.

Why would that matter? The US, for example, in the late 19th century/early 20th century probably had less industrialization income and output per capita than Great Britain (probably because of its larger population), but we don't generally doubt that the US of the late 19th century/early 20th century was largely industrialized, in large part because of its total output and the absolute size of the industrial economy.

Unless you are referring to the population that works in industry, or the industrial sector.

[K. A. Pital]

Why would that matter?

Because, uh... it does? You know, industrial output per capita signifies the level of industrialization, not the aggregate industrial output of a society regardless of it's size.

The US, for example, in the late 19th century/early 20th century probably had less industrialization income and output per capita than Great Britain

You'd be surprised - the US was lagging merely by a little.

we don't generally doubt that the US of the late 19th century/early 20th century was largely industrialized, in large part because of its total output and the absolute size of the industrial economy.

The US rate of industrialization per capita was only slightly less than Britain, which was the most industrialized nation of the age - most studies take the British industrialization level per capita as 100%. The US would be roughly 80% of that in the late XIX century-early XX century, if memory doesn't fail me.

On the other hand, Russia was somewhere right behind the major industrial powers by output in the 1900s, but it doesn't mean Russia was industrialized more than say Mexico, which had a similar level of industrialization per capita.

That's the key difference which people often fail to grasp - if the majority of a society is not industrialized, that would be reflected in the per capita production rates, and thus will reflect the nature of a society far more than the aggregate industrial output.