November 14th, 2011
Econintersect: The Japanese economy roared in the third quarter with a 1.5% gain in GDP from the second quarter. The 6.0% annual rate of gain marks the end of a three quarter recession, which was punctuated with a second quarter decline driven deeper by the devastation resulting from the massive earthquake and tsunami that wreaked havoc on the northeast part of the country March 11. Part of the advance came from putting back together supply chains that were disrupted by the damage March 11. Follow up:
Follow up:There are a number of cautions noted by Mure Dickie in the Financial Times:
- The numbers reported are the preliminary estimates for the quarter ended September 30 – and preliminary estimates are often “dramatically revised” in Japan.
- Most of the growth came early in the summer, with growth slowing by September. This could indicate much less growth for the fourth (current) quarter.
- Exports and industrial output have been slowing – industrial production was down 4% from August in the month of September.
- Negative effects going forward are expected from European turmoil and the slow U.S. economy.
- Virtually all of the growth was driven by private demand (1.1%) and exports (0.4%). Private demand may ease as the initial emergency recovery from the March disaster may be slackening.
- The yen has been strengthening which may further hurt exports.
Even if the 1.5% growth of the third quarter survives revisions, it will not represent a recovery because the compounded losses of the three preceding quarters was larger (1.7%). According to Yahoo News, economists polled by Reuters earlier this month saw Japan's economic growth slowing down to 0.5 percent this quarter. All else unchanged that would complete a recovery, even though it would be a disappointing number.
Tokyo stocks, which closed down for the year last Friday (Topix, -19% YTD), were rallying Monday morning. From Bloomberg/Businessweek:
Sumitomo Mitsui Financial Group, Inc., Japan’s second- largest lender by market value, rose 3 percent. Nippon Electric Glass Co. led gains among makers of the material, rising 5.3 percent, after Barron’s said shares of industry-leader Corning Inc. are poised to surge. Olympus Corp. was set to rise by the daily limit after a report the scandal-hit company may avoid delisting.
The Nikkei 225 advanced 1.2 percent to 8,617.27 at the 11 a.m. break in Tokyo, set for its biggest gain since Nov. 4. The broader Topix index climbed 0.9 percent to 735.69.