FocusJapan poised for nimble growth in June quarter - economists

11 June 2009 07:25  [Source: ICIS news]

By Pearl Bantillo

SINGAPORE (ICIS news)--Japan’s economy will likely post growth in the April-June period after recording five straight quarterly contractions, but weak exports will keep the road to its sustained recovery blocked, economists said on Thursday.

The easing recession at Asia’s biggest and the world’s second largest economy mirrors those of its western counterparts, which have started showing some improvements in production and exports numbers.

The country's industrial output recorded monthly growths in March and April, with shipment of goods showing minimal improvements. Annual numbers still suggested that the economy was still not out of the rut but at least the rate of decline had started to narrow, economists said.

“They already showed a nice bounce in March and April and the schedule for May and June points to further growth,” said David Cohen, Singapore-based chief economist at consultancy firm Action Economics.

“Demand has stopped falling so we will definitely get some stabilization in activity in [the June] quarter,” said Ray Attrill, Australia-based global research director at research company 4castweb.

Japan’s GDP shrank at a less steep pace of 3.8% in the March quarter from the October-to-December period, from the initial forecast 4.0%, with annual contraction at 14.2% a full percentage point lower than the original estimate, official data showed.

Much of the expected growth in the April-to-June period would come from inventory building following aggressive cutbacks implemented when demand collapsed, economists said.

Sustaining the production momentum, however, would be difficult given risks that consumption would not budge to buoy the economy up in the second half, they added.

The data on machinery orders declining 12.7% in April from March served to temper hopes of a smooth road to recovery, they said.

“It does underscore that capital spending is weak right now and is not likely to turn around anytime soon,” said Cohen.

Corporate Japan’s profitability had been dealt with the double blows of steep falls in demand and the strong yen that made exports even less competitive since the onslaught of the financial and economic crises late last year.

Industry profits in Japan tumbled 69% year on year in the March quarter, with the chemical sector in losses, based on statistics from the Ministry of Finance (MOF).

“Corporate investments have been quite bleak and the consumer side has been running negative,” said 4cast’s Attrill.

How the second half of the year would fare “is still much a very brave call at this stage”, he said.

“We may find that the second half of the year [will] prove to be not as good as the second quarter. We are still expecting very weak exports [with no] meaningful pick up in demand in US and Europe,” said Attrill.

Asia has been severely battered by the collapse in global demand since exports were driving the region’s rapid economic expansion.

But the region is expected to lead the global economic recovery given its sizeable domestic economies, particularly in China and India, according to multilateral institutions – the Asian Development Bank (ADB) and the International Monetary Fund (IMF).

The same would not apply to highly-industrialized Japan, which was heavily dependent on exports for growth, said Attrill.

“There is some support from Japan’s fiscal policy and it might get some support from intra-Asian trade, but overall, with the broad export picture and weak consumption, we are likely to see a slightly positive [June] quarter but not necessarily to be followed by [growths in the succeeding quarters],” he said.

Japan’s central bank governor Masaaki Shirakawa had recently voiced out hopes that the worst may be over for world economy although it is “still in the midst of an unprecedecented financial crisis”.

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By: Pearl Bantillo
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