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Thursday, June 7 11:47 AM SGT

Japan's creaking economy crawls forward for now

TOKYO, June 7 (AFP) -

Japan's stumbling economy stands on the brink of another recession and promises of reform by the new prime minister may not be enough to haul it back from the precipice, analysts say.

Gross domestic product (GDP) data to be released on Monday will show quarter-on-quarter growth of up to 0.4 percent in the three months to March, according to the market consensus.

But most in the know -- including Finance Minister Masajuro Shiokawa -- say first-quarter growth will only have been a temporary respite preceding a fresh slowdown in the world's second-biggest economy.

"I think the GDP result for January-March will show a good reading but I am carefully watching the result for April-June," Shiokawa said this week, adding that he feared a slight contraction in the second quarter.

GDP expanded 0.7 percent over October-December and the economy is expected to have escaped recession -- two consecutive quarters of contraction -- in the following three months.

But ING Barings chief economist Richard Jerram predicted the economy, hurt by the US slowdown, would slip back into recession by the end of the year for the first time since 1999.

"Although (current) figures would not show the economy is in a decline ... the problem is where the dynamics are taking us," he said, citing a recent slowdown in Japanese export growth.

Jerram predicted growth of 0.4 percent for the January-March quarter, helped by one-off demand for white goods such as refrigerators in advance of a new recycling law in Japan.

"Consumption figures were quite decent because there was a frenzy of people buying large goods" before the law came into force in April, he said.

Japanese consumers rushed to ditch ageing household appliances in favour of new ones before the law introduced new disposal charges levied by local governments.

Industrial Bank of Japan economist Tomonobu Wakabayashi forecast a GDP rise in the past quarter of 0.3 percent, led by a 1.2 percent gain in non-residential investment.

Spending unrelated to household expenditure rose 6.7 percent in the three months to December.

However, Japanese companies are at the same time hitting the brakes on their spending, with a new survey of non-financial companies released by the finance ministry backing the consensus of an imminent slowdown.

Capital expenditure inched up only 2.5 percent over January-March, compared to 7.1 percent in the previous quarter, the survey showed Thursday.

"After looking at the capex figures we have revised down our quarter-on-quarter forecast to minus 0.1 percent," said HSBC Securities senior economist Peter Morgan.

The government needs to achieve around 0.5 percent growth in the first quarter to realise its GDP growth target for the financial year to March of 1.2 percent, according to investment bank JP Morgan.

International institutions, however, have downgraded their growth forecasts for Japan in the face of the US-led global slowdown.

The International Monetary Fund and the Organisation for Economic Cooperation and Development now expect anaemic growth in calendar 2001 of 0.6 percent and 1.0 percent respectively.

Draft reform proposals under review by a cabinet committee chaired by Prime Minister Junichiro Koizumi are meanwhile giving economists little reason for cheer.

A more concrete version of the plans -- touted as a central pillar to realising the reformist Koizumi's pledge to resuscitate the economy -- should be released by the end of the month.

"The question is whether the government can cope with a recession appropriately," said Masaaki Kanno, chief economist at JP Morgan.

"If they manage to reduce the inefficiencies of the economy then a recession is not such a bad thing," he said. "It all depends on what the government should do and could do."

-- (M@rket.trends), June 08, 2001

Answers

Interesting how they can play with words like 'recession' and assign arbitrary definitions. On the brink of recession? More like Japan has been wallowing in something more than a little recession for- what- a decade or so?

-- StopGo (Market.Trends@Question.Mark), June 08, 2001.

As I understand it, Japan's economy during the '90s sometimes grew a little and sometimes shrunk a little, but has essentially been flat for 11 years or so. The unemployment rate there is at what is an all- time high for Japan--near 5%. And the Japanese stock market is still below the heights it reached back in 1989.

-- (No@growth.Japan), June 08, 2001.

Japan's unemployment rate

http://www.economagic.com/em-cgi/data.exe/blsin/inu0022ja0

1987 01 2.9

1988 01 2.5

1989 01 2.3

1990 01 2.1

1991 01 2.1

1992 01 2.2

1993 01 2.5

1994 01 2.9

1995 01 3.2

1996 01 3.4

1997 01 3.4

1998 01 4.1

1999 01 4.7

-- (1987@to.1999), June 08, 2001.