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Home > Blogs > Mindful Money > Japanese economic growth slows worryingly but if we compare and contrast with Greece…

Japanese economic growth slows worryingly but if we compare and contrast with Greece…

Japanese economic growth slows worryingly but if we compare and contrast with Greece… Mindful Money

As the world’s focus turns away from London 2012 and the Olympic games that have now concluded there has been a development in one of the themes of this blog in the land of the rising sun, Japan. This was not under the category of a good day to bury bad news as the latest economic growth figures for Japan were due. However what we did see was more evidence of a building world wide economic slow down. And there are issues here for Japan herself which relate not only to her problems but to policy options for the wider world.

What were the numbers?

Japan’s economic growth in the second quarter of 2012 was 0.3% which they represent as 1.4% annualized. This was a considerable reduction on the figures for the first quarter which benefited from the comparison with the previous years tsunami affected figures. Indeed even an upward revision to the first quarter figures to 1.3% or 5.5% annualized seemed only to enhance the scale of the slow down.

What has driven the slow down in Japan?

If we look into the detail of the numbers we see something rather familiar which is an issue with domestic demand or consumption. This fell from a growth rate of 0.7% in the first quarter to only 0.1% in the second which is quite a change in terms of numbers. However what this is not a change in is that we are perhaps seeing a return of a regaular feature of Japanese economic life. And yet again there is food for thought for the argument that the post-tsunami stimulus programmes would lead to all sorts of beneficial effects for Japan.

The other factor which contibuted most to the slow down was a fall in net exports. There was always going to be an effect on this from the tsunami from the problems it created for example electricity supply reducing production in exporting industries and the importation of raw materials for rebuilding projects. But if one looks as the post-tsunami period in Japan the export recovery has been quite weak and the import growth has continued. If we just examine the export numbers alone we see that they would have created 0.5% of economic growth in the first quarter but only 0.2% in the second.

Examining the situation from the other direction poses its own questions. If we now look at what caused the growth that took place in the second quarter we see the following. Government consumption contributed one third of the economic growth and public investment one third. Thus if we remove the post-tsunami stimulus effort the Japanese economy looks in danger of grinding to a halt.


Japan has gone through a very difficult period but economic events post-tsunami are posing ever more questions for her. And if her experience is any guide we are seeing that public infrastructure projects do not immediately act as a pilot light for the underlying economy. This is a message for the supporters of such policies who often seem to imply that they are some form of economic nirvana. It is also a message and a warning for the UK in the post-Olympics period that some of the forecasts for an economic boost from the infrastructure spending undertaken are unrealistic. Of course that message has been sent loud and clear from past Olympics but for some this time is always different! Let us hope there is some gain from what for me was a very enjoyable games that somehow managed to key into many of the better influences of British life.

Returning to the Japanese experience some nuance is needed as for example the fact that she may be slipping from trade surpluses to deficits is not an immediate cause for panic in a country which has had years and indeed decades of trade surpluses. But when we examine her financial situation we see that such private-sector surpluses have offset public deficits such as a national debt to GDP ratio on its way to 250%. And the public sector deficit has been under upwards pressure anyway from the consequences of the tsunami.

There is a further factor at play here which is that the Japanese had just made some progress in approving an increase in their sales tax. Why? Well they wanted to reduce the public-sector deficit. In itself this is a wise policy but as I have often pointed out the danger is that a higher sales tax leads to downwards pressure on domestic consumption and we know that Japanese domestic consumption is weak. Today’s numbers have reminded us of that one more time.

So we have one more Japanese theme where the famed flexibility of her economy is contrasted with the sclerotic nature of her political life and establishment. It is quite possible that the sales tax rise will hit her at exactly the wrong time but we will have to wait for that as if there ever was a time where the future is uncertain this is it.

Compare and Contrast

One clear comparison is between Japan and the UK where she still at least has some economic growth! In spite of some improved updates to industrial production and construction the UK economy still looks like it shrank in the second quarter by 0.5% (-0.7% remains the official figure).

However if we move from surplus Japan to deficit ridden Greece we see a much sharper comparison. She too has announced her latest economic growth numbers this morning and they do put Japan’s problems into perspective.

in the 2nd quarter of 2012, the Gross Domestic Product (GDP) at constant prices of year 2005 decreased by 6.2% in comparison with the 2 nd quarter of 2011.

This continues what has been a dreadful trend. If we look at Greece’s GDP in the earliest period covered by this report we see that in the first quarter of 2005 economic output was 44.72 billion Euros and in the latest quarter it was 43.72 billion. Even worse the numbers are flattered by the fact that the first quarter is usually the weakest one.

If we look at the numbers since the Greek economy took a turn for the worse in the third quarter of 2008 we see that her economy has shrunk by 20.5% since then. It makes the word “rescue” look both emotionally and intellectually bankrupt when applied to her.

Looking forwards we seem to be facing a situation where few economies would win a bronze medal let alone gold. Many deficit nations are already in trouble and the surplus nations seem to be weakening too. So we are reminded that this is not the zero sum game that some have implied.

Economics and accountancy in Japan

One of the consequences of the Japanese situation of falling prices is that one has to change one’s mindset. For example Japanese nominal GDP growth was -0.6% on an annualized basis in the second quarter of 2012. However this converted into real GDP growth because prices fell even more quickly (1.1%).

This article was written by Shaun Richards and originally published on Mindful Money under the title: Japanese economic growth slows worryingly but if we compare and contrast with Greece…

Tags: Economy , eurozone Crisis , General Economics , Greek Financial Crisis , growth , inflation , Japan , Japan's Economic Situation , japanese , slow-down
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