While what passes for economic debate in this country ranges from whether there will be a recession, to whether we will have a budget deficit (both a big yes), the freight train that is running down the tunnel towards us in the shape of an Asian economic slum, is moving closer at faster speed.
Yesterday Federal Treasurer Wayne Swan appeared on TV and confirmed there would be a "temporary budget deficit".
No once did he or his questioner look at what is happening in Asia: Mr Swan did mention slowing China, but slumping Japan or slowing South Korea didn’t rate a mention at all. That’s a pity because the news from both countries was terrible.
"You’ve seen a marked slowing in China, and, of course, we’ve seen the unwinding of the mining boom. In the past four or five years, that’s produced a surge of revenue to the Australian nation and of course to our budget bottom line." Mr Swan said on the Nine Network.
"But if you look at the carnage on the stock market, what’s happened with commodity prices, generally slowing growth, what’s happening with company profitability, I think you’ll see a very big hit to our budget bottom line.
"For example, I think company taxation could be down as much as $50 billion over four years as a consequence of the global recession. Of course, what that means is, because of the unwinding of China, the global recession; it will be inevitable that Australia has a temporary budget deficit."
But the cover of the current Asian edition of The Economist magazine was headlined: "Asia’s Shock, Where the crisis is hitting hardest."
It was written before new bad news on industrial production for December from Japan and South Korea, or first and third largest export destinations.
The magazine said: "The scale and speed of that downturn is breathtaking, and broader in scope than in the financial crisis of 1997-98.
"China’s GDP, which expanded by 13% in 2007, scarcely grew at all in the last quarter of 2008 on a seasonally adjusted basis. In the same quarter Japan’s GDP is estimated to have fallen at an annualised rate of 10%, Singapore’s at 17% and South Korea’s at 21%.
"Industrial-production numbers have fallen even more dramatically, plummeting in Taiwan, for example, by 32% in the year to December."
It’s a pity Mr Swan wasn’t asked about the impact of the terrible figures on Australian exports because the toll will be considerable.
It is now clear it’s not the Global Financial Crisis that is going to hit us in Australia, it’s Asia’s economic slump that will whack us hardest of all, whether China rebounds or not. If it does, that will only soften part of the blow.
Friday the Japanese Government reported that industrial production fell 9.6% in December. South Korea’s fell by the same figure to be down nearly 19% over the year.
Japan’s unemployment rate jumped to 4.4% from 3.9%, the biggest jump in 41 years.
The Government said household spending fell 4.6% in December, the 10th fall in a row as Japanese consumers refuse to open their wallets.
Japan is our biggest export market, taking around $34 billion in shipments in the year to June, 2008.
The drop in Japanese industrial production followed the 35% plunge in exports in the month and a sharp fall in household spending, while unemployment rose.
The record plunge followed the previous record set in November which was originally forecast at an 8.1% fall, then revised down to 8.5%.
That holds out the prospect that the December figure could reach an unheard of 10% cut.
Japanese industrial production has fallen by over 30% since September. No wonder more and more companies are warning of rising losses and starting job cuts in Japan and globally.
The market had been forecasting an 8.9% fall. That’s gloomy number for a forecast, but gets worse. The government re-did its forecasts for January to a 9% drop and February, down another 5%.
In all, that knocks nearly a third off Japan’s output since September.
Macquarie Bank’s Tokyo analysts said it put Japanese output back at 1983 levels.
The figures released Friday also showed a rise in business stocks of unsold goods, which points to further slumps in output in coming months (As does the surge in inventories in the US in the December quarter).
For carmakers, production is forecast to hit just 50% of last year’s levels. Every major sector behind Japan’s export machine is being hurt.
But Japan is not the only Asian economy being battered. South Korean output fell 18.6% year-on-yea in December, the economy contracted in the closing months of the year, as did Singapore, Hong Kong and Taiwan.
It was South Korea’s industrial output largest ever monthly drop.
Annual production plunged 18.6% from a year ago, following a 14% drop in November, the National Statistics Office said.
December output fell 9.6% from November as major Korean companies cut output to cope with cooling demand.
The International Monetary Fund forecast this week that the Japanese economy would contract by 2.6% this year, the worst among the major industrialised countries outside of the UK. These lat
