Monday, February 4, 2013

Caught in the ‘lasso’, us too :-(

Fall in demand in the US is driving the Japanese economy to contract faster than the US economy itself

Neither do they have a housing bubble, nor is their banking system saddled with that garbage called sub-prime. Yet, they are feeling the heat more than anyone else in the world. The extravagant adventures of the western cowboys have managed to thwart the languid Sumo economy once again, resulting into its fastest contraction since World War II, when the US ‘Small Boy’ and ‘Fat Man’ brought Japan to its knees. The Japanese economy has shrunk for the fourth consecutive quarter. To crown it all, with every quarter, the curve is going deeper and deeper into an abyss. The latest figures suggest an increased contraction of a mind-boggling 4% (15.2% anualised) in the first quarter as compared to 3.8% fall in the last quarter of the previous year. And it has all happened due to the recession in the US. Definitely, this makes for a great case study for global financial copulation where the woes of West have touched the Far East.

The reason is quite obvious – fall in exports. Over the years, Japan has transformed itself into an export-dependent economy and in such a case when exports register a mammoth 26% fall, then definitely there is no way it can dodge an economic slump. And that’s what is happening. As global trade is inching towards its biggest drop of 9% (10% for developed countries – WTO figures) since World War II owing to lack of demand and supporting credit lines, Japanese companies are forced to cut their production rampantly. This clearly gets reflected in fresh data released by the Ministry of Economy, Trade and Industry, Japan (for March 2009), which indicates a 34.2% (year-on-year) fall in industrial production and 32.4% in shipments. So much so that Japanese trade balance has now receded into the negative. Not only that, it has also resulted in withdrawal of expansion plans (capital expenditure has fallen by 10.4%), increased lay-offs and 1.1% fall in the household spending, one of the key indicators of a healthy economy.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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