Categories: Media Moves

Coverage: Japanese economy falls into recession

The Japanese economy slipped into a surprise recession in the third quarter. The news made some investors nervous, especially when they thought about the how it might spread to other parts of the world

The Reuters story by Leika Kihara and Linda Sieg outlined the basics of what was going on in Japan:

Japan’s economy unexpectedly slipped into recession in the third quarter, setting the stage for Prime Minister Shinzo Abe to delay an unpopular sales tax hike and call a snap election two years before he has to go to the polls.

The recession comes nearly two years after Abe returned to power promising to revive the economy with his “Abenomics” mix of massive monetary stimulus, spending and reforms, and is unwelcome news for an already shaky global economy.

Gross domestic product (GDP) shrank by an annualised 1.6 percent in July-September, after plunging 7.3 percent in the second quarter following a rise in the national sales tax, which clobbered consumer spending.

The world’s third-largest economy had been forecast to rebound by 2.1 percent, but consumption and exports remained weak, saddling companies with huge inventories to work off.

Abe had said he would look at the data when deciding whether to press ahead with a second increase in the sales tax to 10 percent in October next year, as part of a plan to curb Japan’s huge public debt, the worst among advanced nations.

Bloomberg’s Keiko Ujikane and Toru Fujioka said that it was likely that Abe will put off the tax increase:

For Prime Minister Shinzo Abe, the report probably guarantees he will put off the tax increase scheduled for October 2015, a move that people familiar with the matter have said will trigger a snap election next month. Japan also tipped into a recession after a 1997 consumption-levy rise, leading to the fall of the government of the day.

Abe today told reporters that the GDP figures weren’t good and that he’d decide on next year’s sales tax after careful analysis.

While exports and consumer spending returned to gains last quarter, they weren’t strong enough to offset the impact of a slump in the stocks of unsold goods — a sign that companies were unwilling to boost production. Residential investment was another soft spot, while government spending had a positive impact on GDP.

Nominal GDP, which is unadjusted for price changes, also shrank a second straight period, at least the fifth such recession in the past decade. The level, which is most important when considering tax revenue or corporate profits, is 7.9 percent below the peak reached in 1997, according to data compiled by Bloomberg.

Takashi Nakamichi, Mitsuru Obe and Eleanor Warnock wrote for The Wall Street Journal that other world leaders were watching Japan’s actions closely:

Japan’s recession represents another cloud on an increasingly gloomy global economic horizon. A little over a year ago, the International Monetary Fund was forecasting 1.2% growth for Japan in 2014, pointing to Tokyo’s stimulus effort as a bright spot in an anemic global recovery.

But now, IMF officials say Japan could become another drag on global growth.

Europe is already flirting with a third recession in three years. Growth in China, the world’s No. 2 economy and a primary driver of global growth since the 2008 financial crisis, is slowing, causing commodity exporters such as Australia and Brazil to sputter.

U.S. Federal Reserve officials are increasingly concerned weakness overseas may damp a U.S. recovery that finally seems to be gathering steam. If it does, several Fed officials have said they might consider delaying a rate hike markets expected in mid-2015.

The New York Times story by Liz Alderman and Jonathan Soble that Japan’s efforts were to be a model for the rest of the world:

Japan’s unorthodox strategy was supposed to offer a road map for other troubled economies, notably Europe. Fiscal belt-tightening and tax increases, while leaning on the central bank to pump money into the economy, was expected to help overcome a malaise.

The formula, though, has failed to ignite a meaningful recovery in Japan — and has even added to its woes. Europe must now decide whether to follow Japan’s lead by injecting more money into the economy, as the region’s central bank considers a similarly aggressive bond-buying campaign known as quantitative easing. And the United States, which just ended its own six-year stimulus effort, doesn’t offer much of a cushion should other economies stumble further.

“The United States is about the only growth beacon in the global economy right now, and that is not a very nice place to be,” said Jacob Funk Kirkegaard, an economist at the Peterson Institute for International Economics in Washington. “An American growth pickup is positive, but it looks like the rest of the world is again going to be relying on the U.S. as a consumer of last resort.”

If the rest of the world is relying on the U.S. consumer to boost the economy, meaning everyone is going to be watching the holiday spending numbers. What is most disconcerting is that Japan has been working to pull itself out of the economic slump and it’s only getting worse.

Liz Hester

Recent Posts

Dynamo hires former Business Insider executive editor Harrington

Former Business Insider executive editor Rebecca Harrington has been hired by Dynamo to be its…

1 min ago

Bloomberg TV hires Kerubo as desk producer

Bloomberg Television has hired Brenda Kerubo as a desk producer in London. She will be covering Europe's…

24 mins ago

Jittery CNBC staff reassured by new boss

In a meeting at CNBC headquarters Thursday afternoon, incoming boss Mark Lazarus presented a bullish…

35 mins ago

Making business news accessible to a wider audience

Ritika Gupta, the BBC's North American business correspondent, was interviewed by Global Woman magazine about…

50 mins ago

Rest of World hires Lo as China reporter

Rest of World has hired Kinling Lo as a China reporter. Lo was previously a…

1 hour ago

Bloomberg rises to No. 7 biz news website

Bloomberg News saw strong unique visitor growth to its website in October, passing Fox Business…

2 hours ago