What has driven the slowdown in Japan?

13th August 2012

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 worldwide economic slowdown. 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% annualised. This was a considerable reduction on the figures for the first quarter which benefitted from the comparison with the previous year's tsunami affected figures. Indeed even an upward revision to the first quarter figures to 1.3% or 5.5% annualised seemed only to enhance the scale of the slow down.

What has driven the slowdown 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 contributed most to the slowdown 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.

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