September 23, 2021

Economic Expansion Slows Down in Japan

TOKYO — Japan’s economic growth slowed in the second quarter to an annualized rate of 2.6 percent, government data showed on Monday, clouding the outlook for the economic policies of Prime Minister Shinzo Abe and raising concerns that he may put off moves to tackle the country’s enormous public debt.

This was the third consecutive quarter of growth for Japan’s roughly $5 trillion gross domestic product, the third-largest in the world after the United States and China. Still, the expansion fell short of analysts’ expectations for Japan, whose economy grew at a robust pace of 3.8 percent in the previous quarter, helped by the Abe government’s bold monetary and fiscal stimulus drive.

Economists polled by Reuters had expected Japan’s economy to grow at a similarly healthy clip in the April-June quarter. But weak capital expenditure, reflecting continued caution among Japanese corporations over the country’s long-term prospects, slowed growth, according to figures released by the Cabinet Office.

Compared with the previous quarter, the Japanese economy grew 0.6 percent in the latest quarter. Private consumption rose a better-than-expected 0.8 percent over the previous quarter, as a brightening mood in Japan pushed up spending on food, travel and luxury products. But capital expenditure fell by 0.1 percent, below a market forecast for a 0.7 percent increase.

Signs of slowing growth could strengthen the hand of critics of Mr. Abe’s economic drive, which has relied heavily on monetary stimulus and government spending to revive growth in Japan’s long-deflationary economy. Mr. Abe has promised to follow up with market deregulation and easing trade barriers to raise Japan’s long-term growth potential.

Weaker growth could also derail Japan’s plans to raise taxes and pare back its soaring debt, which reached 1 quadrillion yen ($10 trillion) in the second quarter, more than twice the size of its economy. To start easing that debt burden, the government plans to raise a flat consumption tax rate to 8 percent in April 2014 from the current level of 5 percent, and to 10 percent in October 2015.

According to government calculations, raising the consumption tax rate could double tax receipts to more than 5 percent of Japan’s gross domestic product, compared with the current 2 to 3 percent, helping Japan better balance its finances.

Whether Japan goes ahead with raising taxes will depend on how sustainable the government deems current economic growth to be. Under the current plan, the consumption tax will proceed if it is likely that the Japanese economy can sustain at least 2 percent real G.D.P. growth for the next decade.

Some economists warn that raising taxes too soon could derail Japan’s nascent recovery.

“A tightening in fiscal policy would almost certainly snuff out the current cyclical rebound,” Duncan Wooldridge and Silvia Liu, economists at UBS, said in a note to clients ahead of the G.D.P. numbers.

“The desire for fiscal consolidation in the long run must not sacrifice the war on deflation in the short run,” they said. “To hike or not to hike the consumption tax is the only policy which matters over the next four quarters.”

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German Jobless Rate Declines

BERLIN — Unemployment fell sharply in Germany this month, data released Thursday showed, reflecting continued hiring despite fears of an economic slowdown as Europe’s debt crisis festers.

The Federal Labor Agency reported the unemployment rate dropped to 6.6 percent for September from 7 percent in August. Seasonally adjusted, the number of unemployed people declined by 26,000 from August, which the agency described as an unexpectedly high figure. Analysts had been expecting a drop of around 8,000.

Frank-Jürgen Weise, director of the agency, said there was particularly strong demand in retail, construction-related trades, tourism and health care, as well as for temporary workers.

The adjusted level of joblessness has now fallen to 2.92 million people, or 6.9 percent, the lowest for 20 years. The figures also show how Germany, Europe’s largest economy and one of the world’s leading export-driven economies, has fully recovered from the financial crisis of 2008, when almost 3.2 million people were registered as unemployed.

Analysts said the expansion of the labor market reflected high levels of orders for companies, the expansion of the services sector and the late ending of the summer holidays.

The adjusted employment figures lag by one month, however, which means that the real impact of the latest flare-up in the euro zone crisis will be clearer next month.

“The main risks presently stem from ramifications of the euro zone debt crisis, related banking sector concerns and the slow U.S. economy,” said Timo Klein, an economist at IHS Global Insight. He added that Germany’s economic recovery appeared strong enough to prevent a recession.

Growth in the German economy slowed during the second quarter of this year, to 0.1 percent, and private consumption contracted for the first time since 2009 as consumers held back on spending because of the uncertainties.

But Jens Weidmann, the president of the country’s central bank, the Bundesbank, said this week, “we expect economic activity to remain robust in the third quarter.”

The number of registered unemployed would have been much higher had the government during the 2008-9 financial crisis not subsidized a program whereby companies introduced reduced-time work programs, paying their staff members less in order to retain them. The difference in wages was partly made up by the state.

Figures from the labor agency showed that fewer companies were still working with short-time workers, especially the automobile industry, which has been lifted by growth in the Chinese market and the expansion there of the luxury car market as the middle class expands.

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Japan Lowers Its Economic Outlook

HONG KONG — In the latest sign of the economic toll wrought by the natural disasters last month in Japan, the government in Tokyo lowered its assessment of the Japanese economy for the first time in six months on Wednesday.

The economy is expected to start to recover from the severe earthquake-induced downturn later this year, the cabinet office said in its monthly economic report for April.

But for now, exports, private consumption, corporate profits and the job market remain under pressure, further weighing on the economy. Japan had already been struggling with deflation, persistently anemic growth and a seemingly intractable government debt burden well before the devastating earthquake and tsunami that struck March 11.

“Weakness will continue for a while” because of the catastrophes, the cabinet office said in a statement, which was noticeably more bleak than the assessment it issued soon after the quake in March.

The assessment echoed that of the Japanese central bank, which said last week that the economy was “under strong downward pressure” and that there was “high uncertainty” about the possible effects of the disaster on the economy.

Apart from the direct material damage wrought by the quake and tsunami on the northeast of the country, which the government has estimated could reach ¥25 trillion, or about $300 billion, the calamity in turn set off a crisis at the Fukushima Daiichi nuclear power station, which has been leaking radiation.

The condition of the damaged reactors is “static,” but with improvised cooling efforts, they are “not stable,” the chairman of the U.S. Nuclear Regulatory Commission, Gregory B. Jaczko, said Tuesday.

The power shortages resulting from damage to Japan’s energy infrastructure have hampered daily life and business activities in large parts of the country and caused considerable disruption to the flow of spare parts and components to manufacturers in Japan and beyond. Periodic aftershocks, some severe, have also hampered the country’s efforts to return to normal.

Companies have been gradually starting to resume activities at some of the many plants that had to be idled after the disaster.

The steel-making giant Nippon Steel said Wednesday that it had resumed production of wire rods at its Kamaishi plant in Iwate Prefecture.

Renesas Electronics, which makes chips used by the consumer electronics and car sectors, has said it is preparing to resume manufacturing at three plants.

However, many companies continued to caution that the longer-term outlook remained unclear, and activities in many cases are still below normal.

For example, Toyota, Nissan and Honda, the country’s biggest car manufacturers, said last week that they would begin to resume operations at their affected plants in Japan, but all said they would do so at only 50 percent capacity.

Toyota cautioned that it had yet to decide on what its Japan plants would do after the annual spring holiday in May.

Underscoring the lingering disruption to its operations, Toyota said Wednesday that it would suspend production at five vehicle and engine manufacturing plants in Britain, France, Turkey and Poland for several days in April and May because of parts shortages.

In another example of interrupted supply lines, the property services manager CB Richard Ellis said Wednesday that the warehouse vacancy rate in Tokyo had fallen to the lowest level since December 2007 because of a surge in demand for short-term leases following the earthquake and tsunami.

In the longer term, economists say they believe the economy will see a pronounced rebound during the second half of the year, as reconstruction activity kicks in and manufacturers race to meet orders that were delayed.

Analysts expect only a temporary effect on companies’ bottom lines.

“Japanese earnings will take a big hit from the March 11th disasters, and will not likely recover before a couple of quarters have passed,” analysts at LGT Capital Management wrote in a note Wednesday. On balance, however, “the global impact should be limited in the short term and positive over the longer term.”

The cabinet office echoed this sentiment Wednesday, saying that as production activities return to normal, “the economy is expected to resume picking up, reflecting improvement in overseas economies and the effects of various policy measures.”

The government is currently preparing an initial emergency budget of about ¥4 trillion, officials have said.

And the central bank, in an immediate reaction to the turmoil last month, beefed up an asset purchase program and intervened in the foreign exchange markets to stop a sharp rise in the yen. It also announced a loan program totaling ¥1 trillion to financial institutions in the disaster area, in a bid to help them extend reconstruction-related loans.

Many economists have lowered their 2011 growth forecasts for Japan, the world’s third-largest economy after those of the United States and China. But the expectations of an upturn later in the year mean that the revisions have for the most part been slight.

In its latest World Economic Outlook, for example, the International Monetary Fund said Monday that it expected the Japanese economy to expand 1.4 percent this year, rather than the 1.6 percent it had projected before the earthquake.

In a separate report Tuesday
, however, the fund said the need for reconstruction-related spending meant the country would have to step up its fiscal consolidation.

The message served as a reminder of the underlying economic challenges that Japan faced even before the earthquake struck.

High debt levels had already earned Japan a downgrade from the ratings agency Standard Poor’s in January, and they severely curtailed the government’s ability to issue new debt to finance reconstruction and other economy-bolstering measures. Officials have, in fact, stressed that they do not intend to tap the bond markets to fund the emergency budget that is being crafted at the moment.

Among the biggest uncertainties for the coming months, meanwhile, are the extent to which consumer sentiment and spending have been hurt and the duration of the electricity shortages that have been caused by the crisis at the nuclear facility at Fukushima.

“The biggest factor that will bring uncertainty is whether there will be enough electricity, in other words whether the ongoing nuclear crisis can be settled without further deterioration in the situation,” Kaoru Yosano, the Japanese economy minister, said Wednesday in a televised news conference.

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