After recently seeing its predicted GDP growth figures revised downwards by the Asian Development Bank in its latest report, Japan’s economy faces further woes, as new figures show a continued decline in the East Asian nation’s industrial output. Industrial production unexpectedly slid by 0.5 percent in August, following a decline by 0.6 percent in July.
The fear now is that this fall in production will tilt Japan to negative growth
The fear now is that this fall in production will tilt Japan to negative growth. With industrial output forming a large component of GDP, the recent disappointing figures may result in a contraction of growth for Japan’s third quarter, which, following the country’s negative growth in its second quarter, would amount to Japan entering a recession. As The Wall Street Journal notes, there is a “possibility that the world’s third-largest economy will fall into a recession for the second time in as many years and adding to fears about global growth.”
The poor showing is the result of both weak domestic and external demand, although exporting industries led the decline – with the slowdown in China playing a large role. “Japan’s recovery has ground to a halt,” said economist at Capital Economics Marcel Thieliant, reports Market Watch. As a result of the shrinking, “additional easing by the Bank of Japan next month looks all but inevitable,” he added.
Further, Japan’s quarterly business attitudes survey shows many firms are pessimistic about the short term economic prospects of the country. Large firms in particular were most pessimistic, lower their profit forecasts. As Charles Nishikawa, a management consultant in London and lecturer at Mejiro University, tells World Finance, “recent result shows some concern in manufacturing industry particularly with companies exporting to international markets (mainly large corporates). It is surely due to the slowdown of China economy.” The picture, however, is not all gloom. As Nishikawa continues, “businesses mainly serving domestic markets (i.e. service and Small-medium size manufacturers) are still optimistic and they believe in the solid fundamentals of the Japanese economy and future recovery.”