More hints this week the recovery in the Japanese economy from the March 11 disasters isn’t going as well as thought and also surprise signs that the rebound across the Tasman had suddenly slowed as well.
Both developments are important given that the two countries are major markets for Australian companies.
Japan is our second biggest export market (and we have a bigger trade surplus with Japan than with China), while NZ is a major market for our manufacturers and Australian companies have billions of dollars invested there from banking, to the media, retailing and insurance.
From Japan, we have already had signs the rebound from the quake and tsunami might be weaker than previously thought: second quarter activity was revised down with a larger than previously forecast contraction, there was a smaller than expected current account surplus for July and this week a bigger than forecast trade deficit in August thanks to a slump in export growth.
The trade deficit totaled 775.3 billion yen ($US10.1 billion), compared to July’s ¥72.5 billion surplus, according to Ministry of Finance data released yesterday.
It was three times market forecasts for a deficit of around 230 billion yen.
The culprit was a sluggish 2.8% rise in exports from a year earlier, while imports were up 19.2%, with higher prices for many commodities offsetting the impact of the stronger yen.
Export growth was weak generally and the data showed that among Japan’s top trading partners, exports to China rose 2.4%, those to the US were up 3.5%, while shipments to the European Union gained 6%.
Shipments to those markets were up by double digits a couple of months ago as exports of cars, electronic goods and other items recovered after the March 11 disasters had pulled the trade account down into the red.
However, exports to Taiwan fell 16.8%, and those to the Philippines dropped 13.4%, helping trim Japan’s Asian export growth to just 0.4%.
The gain was due to increased shipments of autos, metal processing equipment and ships.
Compared to the previous month, exports rose 0.3% on a seasonally adjusted basis.
The 19.2% rise in imports was well above the 14% forecast from the market, which had also projected an 8% rise in exports. Instead the actual increase was just a third of that estimate
Exports to Australia rose 23.9% while imports from Australia were up 23.4% in August from a year ago, thanks to higher coal and iron ore prices.
In June, Japan swung to a surprise trade surplus of almost $US900 million after posting deficits in April and May.
There is a feeling that the global slowdown is starting to clip Japan’s export growth rates, especially into Europe and the US, and lately China and Asia.
But the strong recovery is still forecast with the International Monetary Fund revising up its forecast for Japan’s GDP contraction this year to -0.5% from the -0.7% fall projected three months ago while revising down its 2012 growth estimate to 2.3% from 2.9%.
That cut was due to the expected slowdown in global growth next year (but the IMF forecast for 4% will still be solid) and lower growth forecast in China, the US and Europe.
The IMF said in its semi-annual World Economic Outlook that the rebound in Japan’s economy in the next year will be due to investment in rebuilding the northeastern Pacific coast regions battered by the March earthquake disasters.
But the IMF also expects deflation to continue in Japan at least through 2012, forecasting CPI declines by 0.4% this year and 0.5% next year.
The better than expected growth forecast for this year means the IMF believes the economy will experience stronger growth this quarter and next than previously expected.
It has to because Japan’s economy shrank by more than initially estimated between March and June.
Gross domestic product fell at an annual rate of 2.1% in the second quarter, significantly more than last month’s estimate of a 1.3% contraction.
Higher government spending on rebuilding the quake and tsunami damaged areas was outweighed by a sharp revision of private non-residential investment, from growth of 0.2% to a fall of 0.9%.
Despite that many economists expect GDP to resume growth in the July-September period, to pull Japan out of three quarters of contraction.
JPMorgan sees growth hitting an annual 7% in the three months to September and 3.5% in the December quarter (but that is down from an earlier 6% annual rate forecast).
And earlier this week, the Japanese government has left its monthly economic assessment unchanged from last month, saying the economy is recovering but concerns remain about the negative impact of the strong yen.
In its monthly economic report for September the government says that industrial production is recovering amid the restoration of disrupted supply chains from the March 11th earthquake and tsunami.
However, the government downgraded its assessment of corporate profits, saying they are on the decline due to the natural disaster and the strength of the yen.
The report says there are signs of improvement in personal consumption, but the employment situation remains severe, which is unchanged from August.
On the future prospects of the Japanese economy, the government is concerned about the increasing risk of a global economic slowdown, the negative impact of the strong yen and lower stock prices.
In addition, it cites credit
