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Economy in Brief

Is Japan Completing Its Transition To Growth From Recession?
by Robert Brusca March 30, 2010

Despite the month’s sharp drop in output, the chart of Japan’s sequential growth rates is a very encouraging picture of an economy in transition. Still it offers no iron-clad promise for the future. The chart shows the drop of IP into recession. Of course the various lines on the chart drop sequentially with the shortest growth rate going down first (3-Mo) then the six-month rate and finally the Yr/Yr rate. Of course the shortest period growth rate makes the largest swings as well and we see that carried into recovery, there is a nice symmetry between the lows and thighs of the 3-month and six mo growth rates. The Yr/Yr rate is still rising.

After the clear recession gyration to new growth rate lows and new growth rate highs, the various growth rate series have settled down to a steady growth path at 25%- still too strong to be sustainable. In the current month we see that path ratcheting a bit lower. Still the six- and three-month growth rates are fairly steady and the Yr/Yr pace is still rising.

As I said at the start there is nothing in this a pattern that assures a soft landing ahead. But the behavior in the indices is just what you would want and expect from a sold recovery that develops after a downturn. Japan still needs to slow its year-over-year advance to something that is more sustainable. And, beyond the numbers, Japan needs to spread the recovery beyond its export sector.

The table shows us that for all the gyrations in IP overall IP is still just 82.9% of its cycle peak. Its transportation output is about 25% below its cycle peak. Investment goods lag the most at only 73.7% of their cycle peak while electric and gas output is closest to full recovery at nearly 95% of its peak level of output in this cycle.

In the current quarter, despite the sharp drop in output in February, IP is still growing in excess of 20 percent annual rates for the headline series. Consumer goods, textiles and mining are the weak sectors in the unfolding quarter-to-date. Auto output has been strong but we may see a shift there due to the problems at Toyota. Still Japan is putting up a very good profile despite the drop in IP in February.

Japan Industrial Production Trends
  m/m % Saar % Yr/Yr Qtr-2-Date
 % AR
%of Cycle
 Peak
Seas Adjusted Feb-10 Jan-10 Dec-09 3-mo 6-mo 12-mo Yr-Ago
Mining & MFG -0.9% 2.7% 1.9% 15.9% 18.4% 31.4% -36.9% 22.3% 82.9%
Total Industry -1.1% 3.1% 1.7% 15.8% 18.0% 29.8% -35.7% 23.2% 83.5%
MFG -0.9% 2.6% 1.9% 15.4% 18.2% 31.2% -36.9% 21.7% 82.8%
Textiles -4.1% 1.9% -0.9% -11.9% -1.5% -4.9% -20.8% -4.2% 70.6%
T-port -2.0% 5.9% -2.9% 3.0% 41.3% 91.0% -60.0% 26.9% 76.2%
Product Group
Consumer Gds -2.7% 2.7% -0.7% -3.3% 2.6% 22.9% -30.5% 6.6% 85.3%
Intermediate Gds -0.7% 3.2% 1.3% 16.2% 20.3% 46.3% -41.9% 24.0% 84.5%
Investment Gds 2.0% 2.3% 1.2% 24.2% 30.9% 11.8% -32.5% 28.8% 73.7%
Mining 1.5% 1.3% 2.6% 23.7% -3.1% -1.6% -6.5% 9.5% 87.3%
Electric&Gas 0.9% 1.6% 0.5% 12.4% 21.6% 8.1% -12.2% 16.3% 94.9%
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