Sunday, August 16, 2009

Japan Emerges From Recession

. Sunday, August 16, 2009

By stockOzone team

Japan's economy has grown for the first time in more than a year to emerge from its worst recession in decades.

The world's second-largest economy expanded by 0.9 per cent in the three months to June from the previous quarter, returning to positive growth after four straight quarters of losses, according to government data released on Monday.

Taken as an annualised rate, meaning if that level of growth were maintained for a year, the country's gross domestic product (GDP) grew 3.7 per cent in the second quarter.

The economy had sunk to its worst ever quarterly contraction in the three months to December last year, when its GDP, or the value of a nation's goods and services, shrank at an annual pace of 13.1 per cent.

The second quarter growth was primarily attributed to increased demand for exports and government stimulus spending.

Manufacturers have benefited from recovering demand in China and other emerging markets while government cash handouts and incentives to boost the purchase of ecological products have also helped.

Exports grew 6.3 per cent quarter-on-quarter, marking the highest growth since the second quarter of 2002 when Japanese shipments expanded 6.4 per cent.

But Kyohei Morita, an economist with Barclays Capital, told the AFP news agency that "this is still a recovery underpinned by government policy measures and far from a self-sustaining turnaround".

Export-dependent Japan was hard-hit by the global financial crisis as demand for its cars and electronics dried up in many industrialised countries.

Unemployment fears
Major companies such as Toyota and Sony cut back on production and slashed thousands of jobs, causing the country's jobless rate to hit 5.4 per cent in June, a six-year high.

That unemployment figure continues to worry politicians and economists, who warn that the recovery could quickly run out of steam because salaries are plunging and the lift in spending from ecological incentives is not expected to last for long.

Compensation for employees dipped 1.7 per cent in the April-June quarter, while consumer spending edged up a weak 0.8 per cent.

Hiroshi Watanabe, an economist with Daiwa Institute of Research in Tokyo, told the Associated Press that "with payments falling, it's really hard to expect individual spending to hold up".

Yoshimasa Hayashi, the economy and fiscal policy minister who said the economy has been recovering despite the "tough environment", conceded that "risk factors" remain, including high unemployment and sluggish production, Kyodo News reported.

Still, the rebound is welcome news for Taro Aso, the prime minister, whose long-ruling party risks being swept from power in an election at the end of this month amid discontent about the country's worst recession in decades.

Disclosure: Author does not own any of the stocks discussed here.

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Anonymous said...

Japan's economy returned to growth in the second quarter, ending its longest recession since World War Two, but analysts warned of a rocky road ahead as the nascent recovery was based on short-term stimulus efforts around the world.

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