Japan, non-oil Middle East and Portugal back in recession
Posted on 19 May 2011 with no comments from readers
The double-dip recession has arrived for Japan, the non-oil Middle East and Portugal. And while the March 11th earthquake deepened the latest quarter’s economic decline in Japan, it does not explain the revision of Q4 GDP last year to minus three per cent.
Portugal has collapsed under the weight of austerity measures to meet debt reduction commitments. In the non-oil Middle East the recession is worst of all with political instability bringing key economic sectors like tourism grinding to a halt and also hitting almost everything else.
Japanese contraction
The Japanese Economic Planning Association expects the economy to shrink by 3.3 per cent this quarter and then bounce back with an increase in government spending to clear-up the earthquake damage. However, its car makers are unwilling to give projections for 2011 because they are so uncertain about the outlook.
Production of car parts and steel have been severely reduced due to damage by the earthquake, and there is a power supply crisis with the shutdown of nuclear plants and the loss of generation capacity. The latter in particular will not be quickly restored.
It is also notable that the Japanese economy was heading back into recession before the earthquake struck on March 11th. The world’s third largest economy was already faring badly in the post financial crisis era, and you have to wonder how its indebted national balance sheet will stand up to this further extreme trauma.
Anarchy
At least Japan and Portugal still have coherent governments that are in charge of their countries. The same cannot be said for large parts of the non-oil Middle East and North Africa.
In Tunisia and Egypt the democratic transition process keeps business fearful; in Libya, Yemen and Syria there is a virtual state of civil war; Lebanon is locked in a political impasse; and Bahrain is a city under military control.
However, it is very hard to say how long recession will last in all these countries. More likely they will first be joined in their misery by other countries. The UK is perilously close to another recession, so must be Greece, Spain and Ireland. US growth is also much lower than it should be after the massive bailouts and money printing.
That financial markets remains relatively strong with this outlook is either encouraging or madness.
