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Japan headed to recession with GDP



By Alex Frew McMillan CNN Hong Kong

TOKYO, Japan -- Japan is expected to make its recession official when it releases its third-quarter gross domestic product figures on Friday.

Economists forecast that Japan's economy shrank 0.4 percent in the September quarter from the June quarter, and 1.8 percent year-on-year, according to a Reuters poll.

Japan escaped the textbook definition of a recession - two down quarters in a row - on a technicality with its last GDP figures. The government reported a 0.8 percent drop in GDP for the second quarter.

It originally reported a drop in the first quarter, too. But that was switched to a rise of 0.1 percent when the data was revised.

Koizumi's popularity still strong

Still, even the Japanese government forecasts an overall decline for Japan this year. In early November, it forecast a 0.9 percent drop in the economy for the business year through March 2002.

In response, Prime Minister Junichiro Koizumi's government has passed one extra budget and is planning a second.

But the supplements are smaller than normal, and the reformist leader has also pledged to rein in government spending.

His cabinet on Tuesday approved budget guidelines for the next business year that cap new bond issuance at 30 trillion yen ($242 billion), one of his most vocal reform goals.

Despite the slumping economy, Koizumi's popularity ratings are unexpectedly high. They have flagged slightly from the record levels after he took office in April. But they have held up over the last few months.

The latest Nikkei poll showed his approval rating stands at 78 percent.

Unemployment at a record 5.4 percent

That high level of support will be vital if he is to succeed. His critics, including some members of his own party, question whether Koizumi can push reforms at a time Japan's economy may need government support, to avoid a brutal downward spiral.

Capital spending by companies rose 0.5 percent in the third quarter, fresh figures showed on Wednesday. That was the seventh straight quarterly rise.

But economists noted that there has been a steady slowing in growth, and the figure was only a marginal gain. Most other indicators have painted a very ugly economic picture.

Japan's unemployment rate stands at an unprecedented 5.4 percent. Incomes are shrinking. Business confidence is down. Bankruptcies and business failures are rising.

Faced with that darkening economic cloud and persistent problems at Japan's banks, the three main credit rating agencies recently dropped Japan's creditworthiness. Japan is now in a tie with Italy, as the least-likely major industrial nation to pay back its debts.

Japan's public debt load stands at a massive 140 percent of gross domestic product. Rating agency Fitch predicts that could rise as high as 200 percent by 2007 at the current rate.

Most of Asia suffering

In Asia, the most tech- and export-oriented economies, Singapore and Taiwan, have already confirmed severe recessions.

Hong Kong narrowly averted the same dubious distinction with its third-quarter GDP, which showed a slight rise.

Most of the region's economies are suffering badly. Even if emerging economies are posting slight gains, they tend to rely on outsize growth.

China's expected 7 percent growth for the year is the strongest in the region. But even that may not be enough to offset job losses as its economy switches from farming to an industrial and service mix.

Japan's slump is doing nothing to help. It is the largest Asian trading partner for most Asian countries.

Some economists believe that Japan's GDP figures are too dated and erratic to give a true picture of its business and industry. Many opt to look at other indicators such as the "diffusion" index, to see if it is in recession.

But a second negative quarter would meet the generally accepted western definition of recession. The world's two largest economies are lagging, with the United States having already posted one down quarter.

Using another set of statistics, the National Bureau of Economic Research said that the longest business expansion in American history ended this March, after exactly 10 years of growth.

The research group says that was also the start of a recession for the U.S. economy.

Richard Jerram, Japan economist for ING Barings, dates the start of Japan's recession to January.



 
 
 
 


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