Friday September 05, 2008

Japan economy shrinks 2.4% as exports decline; recession looms

bloomberg.com :

Japan's economy contracted in Q2 2008 as exports fell and consumers spent less, bringing the country to the brink of its first recession in 6 years. Japan's GDP shrank an annualized 2.4% in the 3 months ended 30 Jun 2008. Exports dropped for the first time in 3 years, while record fuel and food prices deterred spending at home. Toyota reported its worst earnings decline in five years as US sales slumped, and Japan Airlines said it will cut wages to counter rising costs. Stalling growth and the fastest inflation in a decade have created a dilemma for the Bank of Japan, which will probably have to keep its benchmark interest rate at 0.5% for the rest of the year. Japan joins Canada and Italy among G7 economies that have contracted this year.

- With a shrinking economy and rising inflation, Japan's economy can be considered to be officially in stagflation mode. Meanwhile, mainstream economists, and the mainstream media by extension, are loathe to bring up the "S" word, because under the Keynesian economic model, there is no real cure for stagflation. It goes this way - raise interest rates, inflation goes down, but the economy rapidly gets even worse. Lower interest rates, the economy gets a boost, but inflation goes way up. Do nothing at all, and there is every chance that both inflation and the economy will continue doing what they're doing - deteriorate further. The classic Fed dilemma is now spreading worldwide.

See also :

1. Japan inflation at fastest pace in more than 9 years
2. Japan core inflation rate hits 10-year high of 1.0% in Feb 2008
3. Japan wholesale inflation rate hits 7.1% in Jul 2008, a 27-year record high

(2008-09-05 12:51:59 SGT) [Biz] Permalink

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