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Japan also out of recession, following Germany and France

17 August 2009 10:00 (UTC +04:00)

BakÄ± â€“ APA-Economics. Japan’s economy has rebounded for the first time in five quarters, following Germany and France out of recession as massive government spending resuscitates the ailing global economy, data showed Monday.
The return to positive growth is welcome news for Prime Minister Taro Aso, whose long-ruling party risks being swept from power in an election this month amid anger over the fallout from the worst economic slump in decades.
Japan’s economy, the second largest in the world, grew by 0.9 percent in April-June, after contracting by a revised 3.1 percent in the first quarter and by 3.5 percent in the fourth quarter of 2008, the Cabinet Office said.
On an annualised basis, Japan’s gross domestic product grew 3.7 percent in the second quarter.
Japan plunged into recession in the second quarter of 2008 as a severe global downturn crushed demand for its cars, electronics and other goods.
The worst of the slump in foreign demand now appears to be over. Japan’s exports climbed 6.3 percent in April-June -- the first increase in five quarters.
The economy is expected to keep growing through the rest of 2009, said Barclays Capital economist Kyohei Morita.
"However, this is still a recovery underpinned by government policy measures and far from a self-sustaining turnaround," he warned.
Japan, which was hit particularly hard by the global economic downturn, has exited recession before the United States, which shrank 1.0 percent in the second quarter of 2009, according to an official estimate.
Japan’s economy is benefiting from an economic recovery in its biggest trading partner, China, which enjoyed a stunning turnaround in the second quarter of 2009, helped by huge government stimulus spending.
Tokyo has also launched a series of pump-priming packages -- included cash handouts -- to cushion the blow of rising unemployment, which hit 5.4 percent in June, approaching its post-World War II high of 5.5 percent.
Aso hailed the data as proof that his efforts to revive the economy are working.
"Since I became prime minister, I have done my best on economic measures," he told a televised debate with five other party leaders. "As a result, we have seen some signs of a brighter future for the economy."
But the Japanese economy remains hostage to the fate of its major trading partners given its heavy reliance on foreign markets, experts warned.
"Japan remains as dependent as ever on exports," said David Cohen, an analyst at the research firm Action Economics in Singapore.
A shrinking population and rising unemployment mean that domestic consumption is unlikely to be a major engine of economic growth, he added.
Japan’s economy saw plenty of false starts during its 1990s "lost decade" and the fear is that the current green shoots of recovery might soon wilt.
Economic growth is likely to lose momentum in the third quarter as exports have started to slow and rising unemployment is weighing on consumer spending, said RBS Securities economist Junko Nishioka.
"In addition, the effect of the economic stimulus packages is likely to gradually diminish," Nishioka said.
There are concerns that rising unemployment and renewed deflation may hinder a recovery.
"Our hope is that we will enter a self-sustaining recovery after our pump-priming efforts," said Economic and Fiscal Policy Minister Yoshimasa Hayashi.
But he added: "We must keep our eyes on risks such as the worsening employment situation, the effect of the global financial crisis and worries over the global recession."
Investors gave a cautious response to the growth figures, which were slightly worse than the average market forecast for 1.0 percent quarter-on-quarter growth.
Tokyo’s Nikkei-225 index slid almost three percent in late trade, weighed down by heavy losses on Wall Street and a stronger yen. Source: AFP