The futility of Australian companies and policymakers waiting for China to rebound has been underlined by the news that Japan’s economy shrunk by a huge 3.3% in the 4th quarter of 2008, as the recession gripping Australia’s largest export market, intensified.

That was larger than market estimates of a 3.1% fall in the quarter that saw a string of Japanese industrial giants, from Toyota, to Nissin, Panasonic, NEC, Hitachi and Sony forced to cut tens of thousands of jobs in Japan and worldwide after their businesses plunged into deep losses.

Japan is our biggest export market and it is undergoing the worst economic contraction among the world’s major economies.

According to a preliminary report from the Japanese cabinet office the performance left growth down an annualised 12.7% against market estimated of 11.7%.

China is at least growing: annual growth was put at 6.8% in the 4th quarter (but there was no growth from the third to the 4th quarters), growth in Japan, South Korea, Taiwan, Hong Kong and Singapore is plunging as demand dries up for their mix of high end, high value manufactured goods, such as cars, computers, consumer electronics, pharmaceuticals and a growing list of services.

It was the largest fall since the oil shock in 1974 and exceeds the annual 3.8% fall in US growth in the first quarter (a figure that will be revised upwards next week in the second estimate).

Japan’s economy shrank 3.3% in the fourth quarter, the biggest drop since 1974 and further confirmation that the world’s second-biggest economy is in a severe recession as the global economic crisis deepens.

It was a bigger fall than the 3.1% contraction expected by economists and marked the third consecutive quarter of contraction — the first time this has happened in Japan in seven years.

Japan’s gross domestic product figure translated into an annualised fall of 12.7%, exceeding a consensus market forecast for a 11.7% contraction, government data showed.

In July-September, the Japanese economy shrank 0.6%, so the pace of declined accelerated at a pace not thought possible until early last month when poor figures on car sales, exports and especially industrial production, for November, then December started emerging. Exports have fallen to every major reason, especially China. Industrial orders are sharply lower, as are exports (off more than 35% in the latest month)

Japanese unemployment jumped to 4.4% in December from 3.9%, the biggest rise in 27 years, prices are falling as deflation sets in, retail sales are falling as well, as is consumer confidence.

Unlike China and South Korea where the respective Governments have launched stimulus packages, at least three similar policy ideas have been announced, detailed, but have yet to be implemented as the current Government loses its nerve in the face of falling popularity and an unwillingness to go to the polls.

Japan’s 4th quarter plunge was much steeper than the eurozone’s nasty 1.5% fall in the last quarter of 2008, led into the red by Germany’s 2.1% fall, for reasons similar to that for Japan: falling exports, production and the drying up of international orders.

In London overnight, the country’s key employer group forecast that the economy would contract by more than 3% this year and it will suffer the deepest recession in 30 years.

The Confederation of British Industry said that UK GDP will contract 3.3%, instead of the 1.7% predicted in November. That will mean six consecutive quarters of falling growth by the end of this year.

From the figures, for the 4th quarter for the US, Japan and Europe, it is now clear international trade, exports and imports and services, almost came to a halt in the month of December. There have been some tentative signs that the level of activity has picked up in the early weeks of 2009.

But the Bank of Japan reckons the economy will contract by 2% in the year starting April 1, which would mean not much let up in the pain in Australia’s biggest export destination.

But Chinese exports and imports fell last month by more than the impact of the five non-working days for the Lunar New Year would indicate.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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