Japan, one of the biggest victims of the global economic downturn, may also be one of the first countries to exit recession as its stricken export engine sputters back to life, analysts say.
But prospects for a full-fledged recovery from the country’s worst slump since World War II appear dim given weak consumer spending and the slim chances of a dramatic improvement in overseas demand, they add.
Japan’s economy began shrinking in the second quarter of 2007 and suffered a brutal annual contraction of 12.1 percent in the last three months of last year as exports crashed. Analysts say this year’s first quarter could be even worse.
But the economy looks set to grow slightly in the second quarter, “which may well mean that Japan will be the first major developed economy to return to quarterly growth,” said Julian Jessop at Capital Economics in London.
Recent data have sparked hopes that the slump in the world’s second biggest economy may be easing, with exports showing signs of bottoming out and machinery orders unexpectedly rebounding.
In terms of when the economy will return to positive growth, it seems that “Japan will be relatively early in seeing an economic turning point,” Macquarie Securities economist Richard Jerram said.
But he added: “The return to persistent deflation is likely to mean that a normalization of the economy will be dependent on a boost from the export sector.”
The IMF last week forecast Asia’s biggest economy would grow 0.5 percent next year, outperforming the US and most of Europe, after a 6.2 percent contraction this year — the worst among major industrialized nations.
Unlike the US or some European countries, Japan’s economic downturn was caused almost entirely by a drop in demand for its exports.
As consumers in Western markets stopped buying Japanese cars, televisions and other goods, corporate giants such as Toyota and Sony slashed their production to reduce a glut of unsold products.
Production is now expected to creep back up in the coming months, even if it remains much lower than a year ago, as Japan benefits from an emerging economic recovery in China, its largest trading partner.
“It is likely that the Japanese economy reached a trough in February 2009,” Barclays Capital analyst Kyohei Morita said.
Tokyo’s planned stimulus spending of ¥15.4 trillion (US$150 billion) is also expected to help arrest the economy’s precipitous decline.
Data to be released this week will probably show that factory output in Japan rebounded for the first time in six months last month, Morgan Stanley economist Takehiro Sato said.
“The problem is whether such a recovery can extend into the second half,” he said, noting that industries reliant on domestic demand face a difficult outlook.
Any green shoots of recovery are likely to come too late to prevent a jump in the unemployment rate, which is widely expected to rise above its post-World War II high of 5.5 percent in coming months.
Indeed, if the jobless rate surges dramatically, it could keep Japan mired in a prolonged economic slump, as it was during the 1990s, analysts warn.
Japan is also facing a return to deflation. Data due this week is expected to show that consumer prices fell last month year-on-year for the first time since September 2007 as consumer spending fell for a 13th straight month.
Japanese consumers have never regained the same urge to splurge that they had before the 1990s recession and analysts doubt they will come to the rescue of the economy now either, with saving rates rising amid the recession.
“Japanese households continue to face severe conditions with wages starting to fall and employment conditions deteriorating. In this environment, we see no outlook for a recovery in consumption,” Morita at Barclays Capital said.
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