The global economy is on thin ice as Japan reports a significant drop in first quarter growth. Analysts estimated the decline would be about 1.9%. The official number came in at 3.7%, almost double what was predicted. This is the second quarterly GDP decline for Japan, which showed a 3% drop in the fourth quarter of 2010, making their recession official.
The Japanese Tsunami and subsequent nuclear crisis following the March 11 earthquake is likely to blame for the unexpected (by mainstream analysts) drop. Those remaining 20 days in the first quarter seem to have been very bad for the Japanese.
We shudder to think what may happen to second quarter GDP growth in Japan, as well as corporate earnings for Japanese and American companies alike.
Computer company HP has already reduced their earnings outlook for the rest of the year citing near-term problems resulting from the Japan earthquake and related events. They won’t be the last.
The March disaster hit an economy already weighed down by years of deflation and subdued consumer spending, and slashed profits at companies including Toyota Motor Corp. as factories were shut. The economy may further contract in the second quarter before rebounding later this year as reconstruction spending kicks in.
“The contraction in the second quarter will probably be even bigger as consumer spending and exports slump,” said Norio Miyagawa, senior economist at Mizuho Securities Research and Consulting Co. in Tokyo.
Analysts well known for not only smoking, but also pushing optimism opium on the masses, expect the Japanese recovery to return to normal some time later this year:
“The economy will likely return to growth from the third quarter once the supply-chain disruption eases and reconstruction work begins.” [Norio Miyagawa]
The economic contraction may only be a “temporary phenomenon,” and two straight quarters of shrinkage “doesn’t necessarily mean the economy’s trajectory has changed,” Kaoru Yosano, the economy minister, told reporters today.
The economy will probably contract at a 3.3 percent annual pace this quarter, and then resume growth the next two quarters, according to the average forecast of 43 economists in a survey by the government-affiliated Economic Planning Association released on May 16.
“We look for a classic V-shaped recovery in the July-to- September period and after,” said Kyohei Morita, chief economist at Barclays Capital in Tokyo. “A self-sustaining recovery in production, an increase in government consumption and reconstruction demand centered around public works will likely support the economy.”
If the 43 economists analyzing the second quarter are the same as those who made the first quarter predictions, we can conclude with a fair degree of confidence that things are going to get notably worse.
Financial alternative news web site Zero Hedge points out what the rest of the professional economic analysis world simply refuses to say:
Confirming once again that Wall Street economist (and sell side in general) is the most useless profession in the world (though gladly accepting a 7 figures compensation), is the latest data out of Japan which is yet another stunner to most, as nobody, nobody, could have possibly predicted that the Japanese economy would literally fall off a cliff in Q1, plunging at a 3.7% rate (down from -3% previously), which is double the consensus print of -1.9%. DOUBLE. And in nominal terms the collapse was simply epic: -5.2%! And yes, this is officially a recession. Of course, anyone reading Zero Hedge would have been perfectly aware of this outcome. 4 short days ago we said: “Increasingly we have come to believe that the real marginal economy over the next several quarters will be neither that of the contracting US, nor that of the rapidly tightening, yet still very much inflationary China, but the (arguably) third largest one: that of Japan.” Today our prediction is more than confirmed. And instead of hiding deep in the whatever holes these morlocks cralwed out of, Bloomberg for some inexplicable reason continues to look to their blatantly horrendous opinion. “The negative economic impact from the disaster will be on full display during the second quarter,” Hiroshi Watanabe, a senior economist at the Daiwa Institute of Research in Tokyo, said before the report. “This recession may be deep, but short.” Yeah, sure. Short. We’ll just hold our breath.
Let’s hope the Economic Planning Association and not Michael Ruppert are correct with their assessments, because a worst case economic scenario resulting from the Japanese nuclear crisis, as was described in Collapse Countdown Clock: “We Have Until July”, could very well precipitate the collapse that our benevolent leaders are working so hard to avoid:
Michael Ruppert Emergency Action Alert [April 14, 2011]
This is an emergency action alert. This is probably the most important one, and the easiest one in terms of being able to figure out, that I’ve ever put out before. We have until July, at the latest, to prepare for complete economic pandemonium along with all the social unrest that has been building and fomenting and is now breaking out, even though the mainstream is trying to hide it.
What we look for now is the first three month period of operation around the world for corporations after the earthquake. You will see most of those earnings reports being published between June and July of this year…
…that will not be able to be hidden. The impact of global GDP will be devastating. The United States especially, Canada.
…that is something that will send the markets absolutely into a panic because the markets are totally over-leveraged. Everything has been banked upon growth, GDP growth. Japan has in effect killed growth around the planet. It may have killed the global economy because that event is not over and we don’t know how much damage is yet to be done as a result of the radiation to that country and around the world.
Could Japan really be the trigger?