Japanese economy emerges from recession
Updated
Japan's worst recession on record may be nearing its end, with the economy posting a second straight quarter of positive growth.
It's the strongest growth in more than two years, and comes on the back of rebounding exports and massive stimulus spending. But some economists warn Japan needs to keep up its stimulus spending to sustain a recovery, and that it may not have enough money.
Presenter: Corinne Podger
Speaker: Richard Martin, chief economist, IMA Asia
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MARTIN: It's going to be really tough, according to the IMF gross public debt is already over 200 per cent of GDP. So to keep that stimulus spending going in Japan they're going to have to pump out more government bonds. The Finance Minister himself is worried about the ability of the domestic bond market to accept an extra wave of government bond issuance to fund this. So though in the latest GDP data we see signs of the fiscal stimulus providing a bit of impetus to growth, you've got to have a big question mark over whether they can keep that going through the current quarter, the fourth quarter and into the March quarter of next year, because they are running out of money.
PODGER: We are seeing more upbeat news coming out though at the moment, for example on Friday suggestions that Europe might be crawling out of recession, goods news for example from Germany. But we do hear a lot of talk though about a possible double dip recession, is that still on the cards?
MARTIN: Yes outside of Asia it is still on the cards. The key thing to look at is bank lending data and if you look at it for the United States and for the Euro area, bank lending data year on year is still contracting. The rate I think is somewhere around that five to eight per cent year on year level. And what it's telling us right now, and you can see the data through to October, is there is no growth in private demand occurring in these economies either in the business sector or the consumer sector. It's picking up from the bottom it hit in the first quarter of this year, but it's not really expanding yet. So if they pulled back on the fiscal stimulus right now in the United States or in Europe, there's no doubt growth would come to a standstill. So the moment that stimulus stops growth stops in the US and Europe.
PODGER: Back to Asia and we also saw gold close at a record fresh high today in Hong Kong. Now gold is normally where investors go if they're feeling a bit nervous, but at the moment it seems to be down to the strength of the US dollar?
MARTIN: There are lots of stories that move the US dollar around on a daily, weekly and monthly basis, but the bigger long-term underlying trend is the US dollar weakens. And it weakens for a variety of reasons. One, it's the first and probably most important, it's crucial to the global rebalancing story, and that's the story you see the IMF talking about and in fact you see the Central Banks in Japan, the United States and Europe all talking about it. And that means the US has to consume less save more and the opposite occurs in Asia. We see savings running down and consumption going up. And part of that is a weaker US dollar, structurally a weaker US dollar, and that goes right through 2010.
But apart from that people are also getting worried about the level of public debt we're seeing in the United States, it's going up very, very quickly, it's up around 60 per cent of GDP now, and could well go up through 70 towards 80 per cent in the next few years. And they're also worried about what China's doing. China itself appears to be gradually edging its massive offshore holdings, its foreign exchange holdings out of the US dollar, at least out of long-term bonds in the US. And other people are watching that saying well if they're moving out and they're nervous, maybe we should move out. The question is, where do you go if you move out of the US dollar? There aren't too many pools big enough to take big mover value and gold is one of them.
PODGER: What does that augur then for President Obama's visit to China? He'll certainly be asking Beijing to look at the valuation of its currency, the yuan. Will he get any joy there do you think?
MARTIN: Well for a start it's the right two people to be speaking. These two men are at the crux of the rebalancing of the global economy, and it's not an easy path in China. I think through the first three quarters of this year growth, GDP growth in China was about 7.7 per cent. Of that the Chinese statistician, their own statistician admits that 7.2 percentage points, that's virtually all of that growth, came out of fiscal stimulus. So China is running a wildly imbalanced economy at the moment. Both of them know they have to fix it, and both of them know part of that fix is moving the yuan, which has been pretty flat at 6.83 to the US dollar through the last 14 months, it's about moving that yuan up. So coming out of this we may see China restart appreciation of the yuan. It's something that a lot of people didn't think would occur till we got midway through 2010. But the pressure for that to occur soon is growing very, very quickly.
