It follows news last week that the economies of France and Germany have also narrowly moved back into growth.
Japan’s economy grew 0.9% in the three months to June, ending its longest recession since the Second World War. It was largely due to a rebound in exports and the attempts being mounted by governments around the globe to stimulate demand.
Like Germany’s economy, Japan is heavily dependent on manufacturing and exporting. These economies were hit hard as global trade collapsed in the financial crisis but are also first to reflect the early signs of recovery.
The economies of France and Germany each grew 0.3% in the second quarter, according to official figures published by Eurostat last week. Analysts had expected the numbers to reflect ongoing recession. GDP figures for the eurozone overall today showed a 0.1% contraction. Over the same period, the UK economy shrank 0.8% and the US saw a 0.3% decline.
Economists, however, have warned that while they expect Japanese economic growth to continue until the end of the year, the recovery for exports may slow next year as efforts to boost economies by central banks and governments wear off.
‘While Japan is technically out of recession, there are few grounds for optimism about a strong, sustained recovery,’ said Michael Taylor of City forecaster Lombard Street Research.
He said a ‘healthy rise’ in consumer spending was ‘almost certainly’ due largely to the effects of stimulus, especially the eco-points system which was introduced in May in an attempt to boost sales of energy-efficient home appliances. Some retailers had reported a 40% rise in TV and refrigerator sales, Taylor said. Britain and the US have led the way in boosting demand by ‘printing money’. The Bank of England has so far spent more than £125bn of a £175bn programme of quantitative easing. America’s Federal Reserve will finish a similar $300bn plan in the autumn.
These central banks have been buying government bonds, known as gilts in the UK, mainly from financial companies, making them cash-rich and hoping this will flow through to higher lending to companies and consumers.
Economists suggest it takes around nine months for the effect to kick in but there is also a short-term boost to confidence, evident in the unprecedented rally in stock markets worldwide since March. The effects of drastic rate-cutting, which also has a lag of around nine months, may also have helped in propping up demand. Central banks aggressively reduced the cost of borrowing in autmun 2008, starting around 10 months ago.
Governments have also propped up banks by pumping in billions in rescue packages and have launched a number of initiatives aimed at encouraging spending such as ‘cash for clunkers’ scrappage schemes, with discounts given to those who scrap their old cars and buy new models.
Some analysts were therefore today warning it was to early assume now marks the beginning of the end for the global recession. ‘Today’s data was driven by stimulus steps in Japan and overseas, so Japan’s economy is far from self-sustaining growth,’ Barclays Capital chief Japan economist Kyohei Morita told Reuters. ‘The growth level for the July-September quarter will likely be similar to that of April-June, and the pace of growth is expected to slow down thereafter as the effects of government stimulus run their course.’
Japan’s economy suffered a ‘lost decade’ in the Nineties after an incredible consumer boom in the Eighties turned to bust in 1989, sparking a banking collapse. It belatedly slashed rates and eventually turned to quantitative easing in 2003 in a bid to revive the economy.
Japanese house prices and stock markets, barring the odd ‘bear squeeze’, fell for more than 15 years and only saw genuine stabilisation in the tail-end of the consumer boom leading up to the credit crunch in 2007.
The recent growth in the Japanese economy was the first since early 2008. It shrank by 3.1% between January and March this year and a record 3.5% in the final quarter of 2008.
Despite the recovery, market watchers expect the Bank of Japan to keep interest rates at 0.1% until early 2011.
Most Western economies still face soaring unemployment and economists are concerned of a ‘w-shaped’ recovery - recovery then another dip before sustained growth returns.
Figures last week put the UK jobless rate at 7.8% up from 5.4% in the UK. The most recent US figures showed 247,000 jobs were lost in July, although the rate of unemployment growth has slowed from the near-800,000 monthly loss in January. Growing unemployment and a seismic adjustment by consumers to save rather than spend are cited as reasons for a ‘double-dip’ recession.
There are still hopes that the UK, which has an economy more reliant on financial services than other G7 nations, will emerge from recession later this year. Yesterday, Dr Andrew Sentance, a member of the Bank of England’s monetary policy committee, said: ‘I expect to see a return to growth in the second half of this year.’
But he added: ‘There are two big uncertainties over how quickly Britain will recover. The first is the extent to which constraints on bank lending will hold back spending and business activity. The second is the momentum of recovery across the global economy.’
Last week, bearish analysts pointed to a sudden decline in the Baltic Dry Index, which tracks shipping costs and is viewed as leading indicator for commodity prices and therefore global economic demand. The first week of August, with a 17% fall, was the worst since the peak of the financial crisis last October, as demand from China slowed. The index was said to have fallen 35% from its 2009 high in early June, although last week it saw a slight recovery.
Tags: economies, Global Recession, japan, recession
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