Deflation is once again stalking Japan — European manufacturing has got the staggers; the UK economy is contracting nastily, but Ireland is the global basket case as its economy shrinks at rates approaching a Depression.

Japanese wages in freefall. The Japanese economy is sinking, industrial production and exports are plunging, and retail sales slide as consumers refuse to spend, an early symptom of deflation and a situation the Japanese have been through at least twice in the past 20 years.

The depressed car industry continues to wreak havoc on the slumping Japanese economy with figures out this morning showing it was the main driver behind the 5th successive fall in industrial output in the country in February. Preliminary figures from the country’s Industry and Economy Ministry revealed industrial production fell 9.4% last month, a bit better than the record 10.2% in the revised figures for January.

Japanese consumer prices failed to rise for a second month in a row in February and retail sales in the same month fell by a worryingly large 5%-plus from January. Japan’s retail sales were down 5.8% in February from the same month of 2008 after being down 2.4% in January. It was the biggest drop in seven years. Other figures showed Japanese wages fell for a third month in a row, with overtime down 15%.

The Japanese financial year ends next tomorrow and from Wednesday there will be a whole new outlook for the corporate sector. Already some big companies in the electronics, consumer products, car making and heavy industry sectors have been reported as speculating of further cuts in employment levels in the new financial year.

Europe still glum. In Europe on Friday there was similar gloomy news on the economies of the US and the eurozone.

UK gross domestic product fell 1.6% from the third quarter, exceeding the earlier estimate of 1.5%. It’s an annual rate of around 6.2%, very close to the US fall of 1.6% and 6.3% annual in the 4th quarter. (Japan’s was 3.2% in the 4th quarter alone and over 12% on an annual rate.) At the same time the slow down in the eurozone countries appears to have deepened in the first quarter of the year following a collapse in manufacturing orders in January.

Orders fell 3.4% in January from December (which was weak) and were down a stunning 34.1% on the same month of 2008. The latest gloomy data adds pressure for the European Central Bank to lower interest rates when governors meet on Thursday. Inflation isn’t a concern, so the way is open for a cut by up to 0.50%.

The Irish economy imploded in the 4th quarter of 2008, with growth falling a massive 7.5% (or around 28% at an annual rate). That’s getting towards Depression levels.

France’s economy contracted the most in more than three decades in the 4th quarter, with growth down 1.1% from the third quarter (when it fell 0.2%). The fall was the biggest since the final quarter of 1974. And the 30 member economies of the OECD will contract 4.2% this year, according to a report to be issued this week.

The Organisation for Economic Co-operation and Development Secretary General Angel Gurria said at the weekend that “This is a financial crisis that became an economic crisis that’s becoming a massive jobs crisis that will become a human crisis”. He said unemployment rates in Europe and the US will “head toward” 10%.

The latest OECD forecasts will be released tomorrow. The Paris-based group has been predicting a 0.3% contraction for 2009.

Glimmer of hope in US. In America consumer spending slowed in February and their confidence remained near a three-decade low this month. But the small rise in spending was seen as another glimmer of good news: it rose 0.2% after climbing a revised (upwards) 1% in January.

Taken together economists said the rise in spending came on top of two months of positive retail sales. Consumers ran down their savings a fraction in February, but that was due to a fall in income in the month, which was probably the most significant part of the report from the US Department of Commerce.

RBA’s which bank revealed. In its first Financial Stability Report of the year released last Thursday, the Reserve Bank had this to say about the performance of the big five banks and wealth management businesses, like Colonial First State, Asgard and MLC.
In contrast to the increase in aggregate net interest income, the five largest banks’ headline income from their wealth management operations declined markedly over the past year, largely reflecting the downturn in the local and global equity markets.
More than two thirds of the fall was accounted for by net losses on investment assets held in one bank’s life insurance business, though these losses are ultimately borne by policy holders rather than shareholders of the bank.
When this bank is excluded, wealth management income was around 25 per cent lower in the latest half year than for the same period one year previously.
And which bank was that? No not which bank, look south to Melbourne and the National Australia Bank and its MLC insurance subsidiary and funds manager. The Commonwealth also has an insurance arm, but it’s nowhere near the size of the NAB’s MLC operation.
Carmakers sack their big guns. It looks as though running a car company is becoming as dangerous as running a big bank: two global car group CEOs are going, their departures revealed in the last 12 hours. The heads of General Motors, Rick Wagoner, and PSA Peugeot Citroen, Christian Streiff have both been flicked.
The news comes a day before the the US Government’s car industry task force is due to report on the plans by General Motors, Chrysler and Ford on staying alive.
As news spread of Mr Wagoner’s departure, there was speculation his head was demanded as a quid pro quo for more US Government help, although there was also speculation the Obama Administration wanted more changes from the car companies. Falling sales this month mean the car companies will have to cut deeper, as will Ford, which has remained outside the aid loop, but is facing growing pressure on its relatively stronger financial position.
The GM boss said 10 days ago he didn’t plan to resign. News of the his departure came several hours after Peugeot fired Mr Streiff after the dominant Peugeot family lost confidence in him.

Peter Fray

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