Page last updated at 13:08 GMT, Monday, 17 August 2009 14:08 UK

Does Japan offer hope around the world?

Sale in Japan

By Kabir Chibber
Business reporter, BBC News

Japan has become the latest major economy to take a tentative step out of recession.

The world's second-largest economy grew 0.9% in the second quarter from the first three months of the year, figures showed on Monday.

Japan joins France and Germany in terms of leading nations that are showing positive growth after a torrid year.

It seems quite a turnaround for Japan, whose gross domestic product (GDP) was declining at its quickest pace ever - 13.1% on an annualised basis - in the final three months of last year.

What does this mean for the global economy?

Asian benefits

In the first instance, it's very positive for all the countries in Asia.

It does not feel like things are improving at all... My children complain about how tough things have been at work
Mayumi Kuronuma, Tokyo housewife

Their largest economy is showing signs of recovery, which means increased Japanese demand for their products and greater trade between the nations.

Japan was helped by its biggest trading partner, China, which also showed signs of a rebound in its second quarter, as its $586bn (£355bn) stimulus package started to kick in and boost consumer demand.

China's economy grew at an annual rate of 7.9% between April and June, up from 6.1% in the first quarter.

For Japan, the implications of such a boost are obvious.

Japan's exports rebounded 6.3% during the quarter, the first gain in more than a year.

This is also important for Europe. Japan is the European Union's sixth-largest export market and the fourth-biggest buyer of European imports, according to 2007 figures from the European Commission.

Any boost to Japan is a boost to its major partners.

But that does not mean the nascent economic recoveries in Europe and Japan are the same.


"You have to differentiate between what's been happening in Europe and the situation in Japan," says Peter Dixon, an economist at Commerzbank.

"In Europe, there's been a rebound in real activity," he adds, meaning that domestic demand has actually picked up in France and Germany.

"Japan is distorted by the fact that prices actually fell quite sharply in the quarter," Mr Dixon says.

Data shows that consumer prices in Japan dropped 1.76% over the last quarter. So that while the volume of goods and services rose, the actual value of those products fell.

A recovery fuelled by cost-cutting does not necessarily point to a fundamentally healthier economy.

While Japan has struggled with falling prices for well over a decade, this disparity between the boost to output has partly been explained by Japan's large stimulus package.

The Japanese government unveiled a 15.4 trillion yen ($162bn; £100bn) package in April, on top of two other stimulus boosts in the previous year, taking the total public stimulus to the economy to about $260bn.

Many say that this massive flow of money is doing its job and boosting the Japanese economy.

Stimulus measures

Does this mean that President Barack Obama's huge $787bn (£488bn) economic stimulus plan passed early this year will help the US economy show a rebound like Japan's?

"You're likely going to see a big boost in US GDP in the third quarter," Mr Dixon says, partly because of the popularity of the car scrappage scheme in the US, which provides cash towards a new vehicle in exchange for an older gas-guzzler.

He says that the problems in the UK and US were mostly concentrated in the banking sector, "which means that conventional stimulus measures won't have such a huge impact".

german car worker
Germany's stimulus was mainly towards its car industry

The UK's stimulus was of a different kind. It has spent far more as a proportion of its economy bailing out its banks than most other countries.

And the British and US governments' measures to bail out their biggest banks and boost lending are mostly new and untested.

The Japanese measures - to boost sales of fuel-efficient vehicles and consumer electronics - have largely delivered as much as should be expected, considering Japan did not have to deal with the near-collapse of its banking system.

UK rebound?

With positive signs emerging from Europe and the US, the UK's biggest trading partners, this may bode well for the British economy too.

The next estimate of the UK's GDP in the second quarter, currently a contraction of 0.8% from the previous quarter, will be released on 28 August.

"It does suggest that the initial estimate of the UK GDP in the second quarter, which many thought was too negative, will indeed be revised up," Mr Dixon says.

And the boost in world trade may lead to a positive UK growth figure in the third quarter, he predicts.

"The recovery in global demand will put a floor under the UK. What's good for the rest of the world can only be good for the UK."

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