17/08/2009 - 10:04

Japan records positive economic growth

17/08/2009 - 10:04

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Japan, the world's second largest economy and WA's second largest trading partner has joined Europe's two biggest economies, Germany and France in recording positive economic growth in the June quarter.

Japan, the world's second largest economy and WA's second largest trading partner has joined Europe's two biggest economies, Germany and France in recording positive economic growth in the June quarter.

Japan's economy has climbed out of its worst recession in decades, growing for the first time in more than a year.

The Japanese government reported an expansion of 0.9 per cent in the second quarter of this year, following European giants Germany and France in exiting recession in the second quarter.

Both European nations posted an economic growth of 0.3 per cent.

Japan's gross domestic product grew at an annualised pace of 3.7 per cent in April-June, the Cabinet Office said.

Japan's economy is expected to keep growing through the rest of 2009, said Barclays Capital economist Kyohei Morita.

"However, this is still a recovery underpinned by government policy measures and far from a self-sustaining turnaround accompanying improvements in capital expenditure and employment," he warned.

"We believe the next test for the economy will come in January-March 2010, when the effects of recent stimulus measures are likely to (have) run their course."

Japan plunged into recession in the second quarter of 2008 as a severe global downturn crushed demand for its cars, electronics and other exports.

While Japan's recession is technically over, analysts warn that major risks remain, notably from rising unemployment and renewed deflation.

However, the rebound is welcome news for Prime Minister Taro Aso, 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.

The worst of the slump in foreign demand appears to be over. Japan's exports climbed 6.3 per cent in April-June -- the first increase in five quarters.

Japan, which was hit particularly hard by the global economic downturn, has exited recession before the United States, which shrank 1.0 per cent in the second quarter of 2009, according to an official estimate.

Japan's economy is riding the coat-tails of a recovery in its biggest trading partner, China, which enjoyed a stunning turnaround in the second quarter of 2009, helped by massive government spending.

Tokyo has also launched a series of pump-priming packages to cushion the blow of rising unemployment, which hit 5.4 per cent in June -- close to its post-World War II high of 5.5 per cent.

But the Japanese economy remains hostage to the fate of its major trading partners given its heavy reliance on foreign markets, experts warned.

"Japan remains as dependent as ever on exports," said David Cohen, an analyst at the research firm Action Economics in Singapore.

A shrinking population and rising unemployment mean that domestic consumption is unlikely to be a major engine of economic growth, he added.

Japan's economy saw plenty of false starts during its 1990s "lost decade" and the fear is that the current green shoots of recovery might soon wilt.

Economic growth is likely to lose momentum in the third quarter as exports have started to slow and rising unemployment is weighing on consumer spending, said RBS Securities economist Junko Nishioka.

"In addition, the effect of the economic stimulus packages is likely to gradually diminish," Nishioka said.

There are concerns that rising unemployment and renewed deflation may hinder a recovery.

"Our hope is that we will enter a self-sustaining recovery after our pump-priming efforts," said Economic and Fiscal Policy Minister Yoshimasa Hayashi.

But he added: "We must keep our eyes on risks such as the worsening employment situation, the effect of the global financial crisis and worries over the global recession."

Investors gave a cautious response to the growth figures, which were slightly worse than the average market forecast for 1.0 per cent quarter-on-quarter growth and a 3.9 per cent annualised expansion.

Tokyo's Nikkei-225 index slid 2.24 per cent in morning trade, weighed down by heavy losses on Wall Street Friday and a stronger yen.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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