Japan GDP shrinks 12.7% in biggest dive since 1974 as exports collapse

Japan's economy shrank in Q4 2008 by its most since the first oil crisis in 1974, hit by an unprecedented slump in exports, which is likely to lead to more calls for extra stimulus. Japan's economy shrank 3.3%, or an annualized 12.7% in Q4 2008. With exporters cutting production and laying off staff and many retailers reporting sharp falls in sales, economists saw little hope of a bounce back for Japan. The big slide in Japanese GDP was its second-worst in modern times, lagging only a 3.4% contraction in 1974, after the first Middle East oil shock.

A plunge in exports was the main culprit behind the massive Japanese contraction. The subsequent build-up in inventories of unsold cars, flat-screen TVs and many other goods has forced Japanese manufacturers to halt factory lines, pushing industrial production off a cliff. Wary of mounting problems for Japan's economy, the BOJ has nudged interest rates down near zero, taken some unconventional steps including buying of commercial paper, and set up a new funding scheme using corporate debt as collateral.

- To be sure, as yet this 12.7% number is an annualized figure based on quarter-on-quarter results, but if (/when) it does dip into the negative double-digit territory year-on-year, one could probably declare that Japan's economy has gone straight into the Second Great Depression. Since Japan does happen to have the world's second largest economy, if Japan itself is falling into an economic depression or what looks more and more likely the case, an economic collapse, the rest of the world particularly Asia can't be that far behind.

Toyota to cut production 54% in Q1 2009 as demand plunges

bloomberg.com :

Toyota, the world's biggest carmaker, will slash domestic production 54% in the current quarter as demand plunges in the US and Japan. The worst US car market in 28 years is forcing Toyota to widen production cuts after it slashed domestic output 23% in Q3 2008. The plunge in car production at Toyota is contributing to the country's sharpest economic contraction since the 1974 oil shock. "Operating at 50% of factory capacity can't yield a profit," said Koji Endo, a Credit Suisse auto analyst in Tokyo. Producing at 70-75% of capacity is the break-even point, he said. Toyota will eliminate 3,000 temporary workers in Japan by March 31. Toyota said its operating loss may total 450 billion yen ($4.9 billion) this fiscal year. Honda is also trimming domestic production, eliminating all of its 3,100 temporary workers in Japan. Nissan is slashing 20,000 jobs worldwide next fiscal year.

- Toyota cutting its production by half in itself is a pretty major story. But then there is another subtle point that might get lost at first glance. That is the magic 70% figure. I've heard talk of it in the semiconductor industry, where our local poster boy for low production figures is Chartered Semiconductor. Next, I heard talk of airlines cramming passengers into fewer seats to try to keep the load factor up above 70%. Now we hear the same 70% figure from the car industry.

Perhaps the modern economy as it is isn't structured to withstand contractions of 20-30%. We could be looking at an event horizon here as the global economic collapse grinds on. What would the world economy look like when it comes out on the other side? Right now, it's anybody's guess.

Japan exports plummet record 35% as recession deepens

bloomberg.com :

Japan's exports plunged by a record in Dec 2008, signaling companies will be forced to shut factory lines and fire more workers, driving the economy deeper into recession. Exports plummeted 35% from a year earlier, the sharpest decline since 1980. The December drop eclipsed a record 26.7% decline set the previous month. Shipments to the US, China and Europe fell by the most ever, as the global recession dried up demand for Japanese cars and electronics. Toyota, Sony and Honda are shedding thousands of workers and closing production lines as profits and sales dwindle.

- For countries with export-oriented economies, the exports figure is naturally a leading indicator of economic activity. In other words, what the export figures show, GDP figures are likely to follow. Singapore had its 20.8% NODX exports drop, and it is said that Singapore and Taiwan could have GDP contractions of 10-11%. With the kind of figures being released for Asian exporters nowadays, it looks like 20-30% contractions are not entirely out of the question. A GDP contraction of 10% or more would be going into Second Great Depression territory.

(2009-02-17 13:34:31 SGT) [Biz] Permalink

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