Most of the focus of the recession has been on the US and China. It makes sense to try to examine economic activity in the world’s largest consuming economy and the world’s largest exporting economy to search for a bottom in the current crisis. The GDP forecasts for the two countries do not seem to fit together. The US jobless rate and contraction are getting worse at a much faster rate than they are in China, or at least that is what the numbers from the Chinese government show.
Japan gets into the business headlines, but only now and then. It has been lost on many observers that it is still the world’s second largest economy. According to the CIA, Japan’s GDP for 2008 is estimated at $4.8 trillion against the US at $14.3 billion and China at $4.2 trillion. In comparison to China, Japan’s GDP per employed worker is sharply higher.
The Japanese economy is falling apart faster than any other large economy in the world. Looking at the economy on the island, the FT reports that “Polls of economists suggest GDP will have fallen more than 3 per cent compared with the previous quarter – an annualised decline of more than 10 per cent.” If the US economy was contracting that fast, people would be in bread lines. In China, it would likely cause an overthrow of the government.
Those willing to whistle as they pass the graveyard would say that the Japanese economy is structurally and materially different than those of the US and China. That case is actually hard to prove. Japan’s middle class as a portion of its total population is fairly large. It relies on exports for a great deal of its GDP, which makes it not unlike China. At least the US and Japan have formidable middle classes which can drive some level of consumption during a downturn. China’s middle class, largely created in the last two decades, is disbursing itself back into the rural areas from whence it came. Factory closings in the large cities are forcing people to return to farms to live.
To say that Japan’s economy is terribly different from either the US or China would be to disregard the effect of financial globalization which had a meltdown during the last year and damaged the banking and credit systems everywhere. This line of reasoning would also support the idea that one huge national economy is fundamentally unlike those of the other dozen largest economies in the world. But, no individual national economy is that “special.”
If Japan is struggling with rising bankruptcies and big drops in factory and consumer spending, it is probably a foreshadowing of what the next several quarters will look like in the world’s other economic superpowers.
Douglas A. McIntyre