Predictably, most Australian media reports focused on the growth slump in China this morning, not really appreciating the horrible fall in Japanese exports and South Korea’s plunge into the red and the dire impact those moves will have on our exports, especially coking coal and iron ore.

The Australian went down the growth recession p-rn route, with a breathless page one splash about how the IMF was poised to cut our growth forecast. That’s a story about the bleedin’ obvious.

Forget slowing China and what it means for Australia, the real disaster for this country is the accelerating slump in Japan and South Korea, which buy more of our raw materials collectively than does China.

Put simply, Japan is heading for a crunch — exports plunged a record 35% in December while in South Korea the economy contracted to an annual 3.4% rate in the December quarter, the worst since the Asian crisis of 11 years ago.

And Japan is not going to rebound quickly with the central bank warning yesterday after a meeting that the economy faces two years of contraction and deflation.

The bank does not expect a recovery until the spring of 2010, when it predicts price falls to slow as well. It warned, however, that “uncertainty is high”. The central bank forecast a contraction of 1.8% for the year ending March 31 and 2% for the following fiscal year to March 2010. In its previous assessment, in October, the bank projected growth of 0.1% this year followed by 0.6% next year.

Compared to a still-growing China, that is very, very bad news, yet the media missed it this morning: the ABC only picked up on it from around 9.30am.

China accounted for 14.9% of our exports in 2007-08 (and was one of the fastest growing markets with a total value of $26.9 billion). Exports though to Japan amounted to $34.9 billion (19.3%) and South Korea was third with $14.9 billion, or 7.9%. That’s almost $50 billion in exports to Japan versus nearly $27 billion to China.

The Sydney Morning Herald at least mentioned Japan and South Korea, but claimed that $5 billion in exports to China were at risk (As did The Australian). That’s roughly 20%. The SMH didn’t stop to consider that if the same calculation was done on exports to Japan (around $7 billion), South Korea (nearly $3 billion), you get $10 billion.

In fact, the real story then becomes $15 billion in exports at threat as Asia’s major economies slow. Taiwan is another big market, its slowing, smaller Singapore is contracting. Our fastest growing export market has been India. It is slowing and the Satyam scandal is going to cripple foreign investment and demand for Indian services, which will hurt countries like Australia.

So while the concentration on the impact of a slowing China is understandable, the impact on our exports of a severely recessed Japan and a sliding South Korea will be much greater.

Figures from China showed that growth slowed to 6.8% in the December quarter, down from 9% annual in the September quarter, giving a 2008 growth figure of 7% — down sharply from the 12.9% in the recently revised figures for 2007.

Many economists believe the Chinese economy will expand by no more than 5% to 6% in 2009, which would be the weakest performance since 1990. But that is still growth of a sort: Japan and South Korea will contract, Japan by a very nasty amount.

Others expect the Chinese government to hit its target growth rate of 8% as the $US585 billion stimulus package from last year and much easier monetary policy kick in (two interest rate cuts and an easing on bank lending, plus a series of export rebates).

The slump in China will get the headlines, but at least the growth is positive. Not so in Japan and South Korea. Quite simply it is dismal news and bad for Australian exporters.

There was a big tip for Australia and Australian policymakers, economists and the media in the ignored Japanese export figures:

Shipments into the recession-hit US fell 36.9%, with car movements slumping: that was to be expected. But exports to Asia dropped 36.4%, with those to China down 35.5%. Asia has been accounting for more than 40% of Japanese exports, so the slump’s extent is very apparent.

Japanese exports into Europe plunged more than 41% as eurozone economies, lead by Germany, fell deeper into recession. Industrial orders in November in the 15 eurozone countries plunged 26%. The recession is clearly feeding on itself.

Japan’s imports dropped 21.5% (well above the 16% forecast from the market) as oil and other commodity prices continued to weaken. But the drop in exports was much larger than the impact of cheaper imports, so the country had its third monthly trade deficit in a row.

Three trade deficit in a row: now that tells you how bad the Japanese economy is at the moment and it is going to go on falling for quite a while yet.

Peter Fray

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