14th November 2011
Right at the beginning of today and indeed this week the land of the rising sun provided some economic news that did at least raise some cheer. After recent news we were in need of it I think. The news was that according to here Cabinet Office that the Japanese economy had grown by 1.5% in the third quarter of this year. Care is needed here as many places show these as an annualised number and report 6% growth! For Japan herself the image of a rising sun was indeed appropriate as a strong level of economic growth of 1.5% replaced the preceding -0.3,-0.7 and -0.7. So as you can see Japan had returned to recession in the spring under the definition of two quarters of economic contraction and you may note that this had happened pre-tsunami. Actually post-tsunami the situation had begun to improve.
Breaking the numbers down
One feature of these numbers was strong export growth as they expanded by 6.2% on the quarter and Japan also supported overseas producers as she imported an extra 3.4%. However some care is needed her as much of the import growth is likely to come from her post-tsunami construction efforts and include raw material as much as products. So as you can see net exports were a strong feature in the reported growth. If we look at private consumption we see that whilst it grew strongly the fastest rate of growth at a heady 21.7% annualised was private residential investment or post-tsunami reconstruction.
Some expected government consumption to contribute strongly in this quarter but in fact it fell overall as an increase in ordinary government expenditure was offset by a 2.8% fall in public investment and the total contribution was -0.1%. So in spite of us now having just received a third supplementary budget last week where a further 12.1 trillion Yen of extra spending was promised which comes on top of the past 6 billion Yen we see that even 6 months later government stimulus measures are not helping much. If we go back to times when I was discussing fiscal policy and fiscal stimulus measures ( for example America's Recovery Act) I made the same point. They take so long to work that by the time that they do the stimulus may be less appropriate or not appropriate at all. Often the image presented by politicians is of a tap which can be turned on at will when the reality is that it is quite some time before water flows from the tap.
The US Recovery Act is a test case
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