Japanese economy in recession; GDP at ¥500tn for past 20 years
Kyodo News reports that the Japanese economy shrank an annualised real 0.8% in the July-September period — the second straight quarterly contraction — dragged down by a weak recovery in consumer spending and sluggish capital investment, the government said Monday.
The contraction in inflation-adjusted gross domestic product, the total value of goods and services produced domestically, corresponds to a 0.2% decline from the previous quarter.
The GDP data indicates that Japan's economy is in "technical recession," which is defined as two consecutive quarters of negative real GDP growth. In the April-June quarter, GDP fell a revised 0.7% on an annualised basis.
This is a setback for Shinzo Abe, Japan's prime minister, and his “Abenomics” economic policies of massive bond-buying by the Bank of Japan and fiscal reforms to end two decades of deflation.
Nominal GDP has been at about ¥500tn (US$4tn) for about 20 years and at the end of next month Abe will be 3 years in office and the economy has contracted in five of 11 quarters.
The prime minister announced a target last September to boost Japan's nominal GDP — the value of economic activity unadjusted for inflation — by 20% by 2020 through achieving growth of at least 3% every year. He did not announce specific details on how this can be achieved.
Since the end of 2012 nominal GDP has risen by 6% with prices accounting for half of it but prices have been falling in recent times and the central bank's 2% annual inflation target hasn't been met.
In September it was reported that regular wages had increased in the 12 months to July by 0.6% — the most in nearly 10 years. The unemployment rate is down to almost 3% but more than a third of the workforce is temporary on low pay and little security. The gross public debt GDP ratio is at 240%. It was 51% in 1980.
In the third quarter a fall in inventories subtracted 2.1 percentage points from overall economic growth while business investment shrank an annualised 5.0% during the quarter — a second straight quarterly drop — reflecting a slowdown in corporate earnings partly explained by reduced activity in China
Private consumption, which accounts for some 60% of GDP, rose 2.1% following a dip of 2.3% in the previous quarter.
Interest rates have been close to zero since the mid-1990s and Marcel Thieliant, an economist at Capital Economics, said Japanese policy makers have showed "considerable reluctance" to respond to weaker growth with more stimulus as inflation accelerates, and he does not expect more easing at the Bank of Japan's meeting this week.
"The upshot is that the Bank's preferred inflation measure, which excludes prices of fresh food and energy, should start to moderate soon," he said in a note. "We therefore remain convinced that more stimulus will eventually be needed, and now believe that the January meeting is the most likely venue for its announcement."
Pic above: Shinzo Abe, Japan's prime minister, speaking in Turkey in advance of this week's annual summit of the leaders of the G-20's 19 top developed and emerging economies, 14 Nov 2015.