Hillary Clinton has landed in Japan--the first stop on her first diplomatic trip as Secretary of State--to find that nation's government under pressure after news its economy shrank 3.3% in the fourth quarter of 2008. It is the biggest drop in gross domestic product since 1974, and Japan's minister for economic and fiscal policy called it "the biggest economic crisis since the war."
So why did Japan's economic struggles at the end of last year surpass those of the U.S. and Europe, when the country--and its banking system, which still hasn't been hit as hard--seemed on the outskirts of the meltdown last fall? The answer lies in Japan's dependence on exports. As The Economist points out:
Export demand drove the longest post-war recovery, in 2002-08, when the country seemed to be putting its post-bubble “lost decade” well behind it. During the recovery, exports’ share of GDP rose by over half, from 10.6% to 16.5%. That strength is now a weakness as consumers around the world have cut their spending and global trade flows have shrunk: in December, for instance, the value of Japan’s exports fell by 35% compared with a year earlier, after falling by 27% in November.
The export shock, it is now clear, is triggering others. A near vertical fall in Japan’s industrial production in a few short months has swiftly wiped out all the gains from six years of recovery (see chart). Economists reckon that by the end of February industrial output will be back to levels last seen around 1987.
Japan's banks, as mentioned above, were not caught up in the sub-prime mortgage mess of last year, and its citizens have not carried the levels of debt that their counterparts in the US have, so there are signs that economic recovery could be relatively quick. But, it seems, Japan will not rise unless there is a global recovery. As consumer confidence in the West shows few, if any, signs of improving in the near future, the ripple effects of Japan's export problem bear watching. Clinton is off to China later in the week, another economy highly dependent on exports. It will be interesting to see what economic news she receives on arrival.
Posted
02-16-2009 9:24 AM
by
Graham Griffith