Japan’s economy expanded 1.5% between July and September, returning to growth after three consecutive quarters of contraction, growing for the first time since the earthquake in March. GDP grew by 1.5% sequentially till September 30, equivalent to an annualized rate of 6%. The growth rebound reflects the recovery in supply chains disrupted by the huge earthquake and tsunami, thereby lifting factory output and consumption.
The Industrial Sunshine
Japan's industrialized, free market economy is the second-largest in the world. Based on its talent pool of industrial leadership and a skilled work force, this nation has the ability to create high savings and investment as it has done in the past. The country’s intensive promotion of industrial development and foreign trade has transformed it into a highly efficient economy with a competitive advantage in areas of international export. Historically, since 1980 till date, Japan's quarterly GDP grew by 0.52% reaching an historical high of 3.15% in June 1990 and a lower dispersion of (-) 4.90% in March 2009.
The Unearthly Devastation
Japan's economy was dragged into a recession after the earthquake and tsunami ravaged its northeastern part on March 11. Tokyo, which witnessed limited physical impact, has been affected by the exodus of people to Osaka and abroad, leading to a fall in consumer demand. The level of economic activity further dipped on fears of radiation from the power plant and electricity shortages
The Legislative Blessings
The calamity, however, mobilized the policy makers to address long-standing challenges, such as controlling the country’s fiscal deficit. Economic and Fiscal Policy of the country suggested bond sales and consumption spending cuts as strategic measures. Moreover, stricter tax measures to fund the reconstruction as well as a ramp-up in corporate investment were also expected to rejuvenate the economy.
These legislative measures did have some effect. Government consumption growth was modest and public investment actually declined 2.8% quarter on quarter. Corporate capital spending rose 1.1%, while service sector spending added 0.6% to growth. Private consumption jumped 1.0%, rising for the first time in four quarters. Net exports contributed 40 bps to GDP growth, the first positive contribution in five quarters.
Fragile?
However, Japan’s economic recovery looks quite fragile. The growth seems slow with a strong yen. Machinery orders, of late, have been flat amid the economic uncertainty in Europe and the U.S. slowdown; leading to a slump in business sentiment. Moreover, the Thai floods have thrown a spanner in the works breaking the supply chain of Japanese manufacturers. The productivity is far lower in protected areas such as agriculture, and to some extent, services.
The above uncertainty is a concern. Japan’s rebound looks temporary, rather short-lived whereas the tailwinds appear stronger.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment