Stimulus and Exports Help to Ease Japan's Recession
TOKYO — Japan’s economy grew at a robust annual rate of 4.8 percent in the third quarter as stimulus spending and a rebound in exports appeared to bring the country firmly out of its worst recession in the postwar era.
Gross domestic product grew 1.2 percent in the July-to-September period from the previous three months, or at an annual pace of 4.8 percent, the government said on Monday. It was the second consecutive quarter of growth for Japan, and the healthy clip offers more evidence of a widespread recovery from the global economic crisis.
Last week, the 16-country euro zone said its economy grew 0.4 percent in the three months to September, the first uptick in six quarters. The reading for Japan is an initial estimate that could yet be revised; it beat a 2.9 percent median forecast of 20 economists surveyed by Bloomberg News. Still, the outlook for Japan’s economy remains unclear, with a new government in Tokyo threatening to wind down stimulus spending just as the recovery starts to gain steam.
“We’re finally seeing a rebound in domestic demand, and a high rate of growth over all. It’s clear that the economy has bottomed out,” Koichi Haji, chief economist at the NLI Research Institute in Tokyo, said.
“But much of the recovery has been thanks to government spending, so we’ll most likely see growth slow going forward,” Mr. Haji said. “It’s too soon to say we’re out of the woods.”
The G.D.P. in the United States expanded at an annual rate of 3.5 percent in the quarter that ended in September, matching its average growth rate of the last 80 years, the Commerce Department reported at the end of October. The growth in America was also partly propelled by stimulus programs.
Investment by companies helped drive the recovery in Japan. Capital spending rose a better-than-expected 1.6 percent in the quarter, the first gain in eighteen months. Exports grew 6.4 percent, helped by stimulus spending by governments around the world, which has led to a recovery in global trade.
Consumer spending, which makes up two-thirds of the economy, climbed 0.7 percent, propped up by more than 20 trillion yen in stimulus spending by Japan. In particular, government incentives on purchases of energy-efficient appliances and cars have bolstered sales at companies like Toyota Motor and Sony.
Citing increases in demand, manufacturers like Toyota and Nissan recently upgraded their earnings forecasts for the fiscal year. Still, Japan’s exporters remain under pressure from the strong yen, which makes their products less competitive overseas and erodes profits in the home currency.
The recent expansion goes only so far to make up for ground lost in the global downturn. Though Japan’s banks were not at the epicenter of the financial crisis, the country suffered as demand for its exports collapsed, wiping out a full five years of economic growth.
Industrial production still remains a fifth off last year’s levels, and unemployment, at 5.3 percent, is close to a record high. Deflation is back in full force, eroding profits and wages.
And despite the frailty of Japan’s recovery, Prime Minister Yukio Hatoyama has been fiercely critical of further spending on public works. His Democratic Party of Japan, which swept to a landslide victory in August, has blocked 2.9 trillion yen ($32.4 billion) in stimulus measures introduced by the departing government and could hold on to the funds until next year.
Instead, Mr. Hatoyama says he plans to divert the money toward social welfare spending, like subsidizing child care and lowering tuition fees at schools.
But while better safety nets could lessen the blow of high unemployment and help raise the birthrate, economists say those measures would take time to carry out and to take effect — and such a delay could hurt economic recovery in the short term.
“As the Democrats move from investment in concrete to investment in people, a smooth transition will be key,” said Mr. Haji of NLI. “Any public works money not spent now is a direct loss to the economy. We could see a slight slump before the Democrats’ measures kick in.”
Critics also warn that Mr. Hatoyama’s ambitious social agenda could ultimately be detrimental to Japan’s rising debt, which is approaching twice the size of its $5 trillion economy. Last week, the Fitch Ratings agency warned that it would review its rating on Japan’s public debt if the government failed to rein in spending.
TOKYO — Japan’s economy grew at a robust annual rate of 4.8 percent in the third quarter as stimulus spending and a rebound in exports appeared to bring the country firmly out of its worst recession in the postwar era.
Gross domestic product grew 1.2 percent in the July-to-September period from the previous three months, or at an annual pace of 4.8 percent, the government said on Monday. It was the second consecutive quarter of growth for Japan, and the healthy clip offers more evidence of a widespread recovery from the global economic crisis.
Last week, the 16-country euro zone said its economy grew 0.4 percent in the three months to September, the first uptick in six quarters. The reading for Japan is an initial estimate that could yet be revised; it beat a 2.9 percent median forecast of 20 economists surveyed by Bloomberg News. Still, the outlook for Japan’s economy remains unclear, with a new government in Tokyo threatening to wind down stimulus spending just as the recovery starts to gain steam.
“We’re finally seeing a rebound in domestic demand, and a high rate of growth over all. It’s clear that the economy has bottomed out,” Koichi Haji, chief economist at the NLI Research Institute in Tokyo, said.
“But much of the recovery has been thanks to government spending, so we’ll most likely see growth slow going forward,” Mr. Haji said. “It’s too soon to say we’re out of the woods.”
The G.D.P. in the United States expanded at an annual rate of 3.5 percent in the quarter that ended in September, matching its average growth rate of the last 80 years, the Commerce Department reported at the end of October. The growth in America was also partly propelled by stimulus programs.
Investment by companies helped drive the recovery in Japan. Capital spending rose a better-than-expected 1.6 percent in the quarter, the first gain in eighteen months. Exports grew 6.4 percent, helped by stimulus spending by governments around the world, which has led to a recovery in global trade.
Consumer spending, which makes up two-thirds of the economy, climbed 0.7 percent, propped up by more than 20 trillion yen in stimulus spending by Japan. In particular, government incentives on purchases of energy-efficient appliances and cars have bolstered sales at companies like Toyota Motor and Sony.
Citing increases in demand, manufacturers like Toyota and Nissan recently upgraded their earnings forecasts for the fiscal year. Still, Japan’s exporters remain under pressure from the strong yen, which makes their products less competitive overseas and erodes profits in the home currency.
The recent expansion goes only so far to make up for ground lost in the global downturn. Though Japan’s banks were not at the epicenter of the financial crisis, the country suffered as demand for its exports collapsed, wiping out a full five years of economic growth.
Industrial production still remains a fifth off last year’s levels, and unemployment, at 5.3 percent, is close to a record high. Deflation is back in full force, eroding profits and wages.
And despite the frailty of Japan’s recovery, Prime Minister Yukio Hatoyama has been fiercely critical of further spending on public works. His Democratic Party of Japan, which swept to a landslide victory in August, has blocked 2.9 trillion yen ($32.4 billion) in stimulus measures introduced by the departing government and could hold on to the funds until next year.
Instead, Mr. Hatoyama says he plans to divert the money toward social welfare spending, like subsidizing child care and lowering tuition fees at schools.
But while better safety nets could lessen the blow of high unemployment and help raise the birthrate, economists say those measures would take time to carry out and to take effect — and such a delay could hurt economic recovery in the short term.
“As the Democrats move from investment in concrete to investment in people, a smooth transition will be key,” said Mr. Haji of NLI. “Any public works money not spent now is a direct loss to the economy. We could see a slight slump before the Democrats’ measures kick in.”
Critics also warn that Mr. Hatoyama’s ambitious social agenda could ultimately be detrimental to Japan’s rising debt, which is approaching twice the size of its $5 trillion economy. Last week, the Fitch Ratings agency warned that it would review its rating on Japan’s public debt if the government failed to rein in spending.
Source: New York Times
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