Japan’s economy strengthens post-quake; Slowdown fears linger

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Bank of Japan says the country's rising economic growth rate and productivity was at its "most critical stage". Photo - AFP

Japanese economy expanded at an annual real 6 per cent in the three months through September, its first growth in four quarters, rebounding from a slowdown caused by the devastating March 11 earthquake and tsunami, government data showed Monday.

While exports and consumer consumption led the rise, prospects are not necessarily bright, with many economists expecting growth in the following quarter to sharply decelerate amid a slowing global economy in the face of financial instability in Europe, yen’s persistent rise and floods in Thailand.

The Cabinet Office said compared to the previous three monthsGross domestic product grew by 1.5% in the three months to the end of September.

However, some analysts suggest strengthening of yen and global economic problems may sap further recovery.

TOUGH SITUATION

“The positive growth came on the back of rapid restoration of (nationwide) supply chains after the disasters,” Economic and Fiscal Policy Minister Motohisa Furukawa said, noting that the economy will continue to pick up amid an increase in demand for rebuilding disaster-hit areas.

While addressing a press conference, he said: “The situation surrounding our country’s economy is becoming tougher as we see the recovery in overseas economies weakening and face the impact of the Thai floods, in addition to the yen’s rapid rise.”

Furukawa also said he “recognises” that the average forecast of private-sector economists for real GDP in fiscal 2012 is “tougher” than of the government, which is in a range of 2.7 percent and 2.9 percent, possibly suggesting a downward revision.

EXPORTS REBOUND

In the reported quarter, exports jumped 6.2 per cent, the first rise this year. Japan’s economy braved disrupted supply chains of industrial products to register growth. Government officials said cars exports significantly contributed to the growth.

The world’s third biggest economy was dragged into a recession after the earthquake, which caused severe damage to the northeast of the country. It also damaged factories and disrupted supply chains.

“The return to growth in the third quarter reflects the recovery in supply chains, which lifted factory output and consumption,” said Yasuo Yamamoto from Mizuho Research Institute.

Imports, which serve as a minus factor for GDP, gained 3.4 per cent possibly because of increasing demand for fuel as utilities shift to thermal from atomic power in the wake of the nuclear crisis at the Fukushima Daiichi power plant, triggered by the March disasters.

BLEAK PROSPECTS

Analysts, however, insist there are a number of factors that threaten Japan’s fragile recovery.

Problems include the strength of the yen, slowing global growth and the impact of the floods in Thailand on the supply chain of Japanese exporters.

“Growth in the fourth quarter is likely to slow partly due to the flooding in Thailand,” said Mr Yamamoto. “External demand isn’t likely to contribute much to Japan’s growth in the future due to Europe’s problems.”

This view was backed up by Hiromichi Shirakawa of Credit Suisse who said in a report that Japan’s economy had “already lost upward momentum since August”.

“Japan’s economy is returning back to normal…in which external demand will significantly affect the future course of the economy,” Kenji Tanaka, an economist at the Development Bank of Japan, said in a report.

Noting that the largest risk at this moment is the debt crisis in Europe, Tanaka said that uncertainty is also lingering over when the massive Thai flooding, which is causing supply chain disruptions, will end.

“The environment surrounding exports is deteriorating…I think positive growth will be maintained in the October-December quarter, but show a slowdown,” he said.

Sources: BBC, manichi.jp

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