Research Dept. News
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Monthly Report, num 350 - October 2011
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International review - Japan
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Japan: the recovery continues, albeit with doubts
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After revising its GDP figures, the economy fell by 0.5% in the second quarter instead of the previously announced 0.4% but this does not alter expectations of a vigorous second half to the year. In 2011 as a whole, the Japanese economy will decline by 0.5%, picking up again in 2012 and advancing by 2.7%. This downward revision must be understood as a return to normality after an initial estimate that had been surprisingly high.
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Japan falls by a minimal 0.5% in the second quarter and is expected to improve in the third.
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On the other hand, a breakdown in GDP shows the downward revision to be more ambiguous, based on a recovery in stocks that is better than had previously been estimated and a certain reticence in capital goods investment due to the uncertainty caused by the power cuts and the growth problems of advanced economies. However, private consumption fell less than expected and exports held firm.
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Japanese exports depend on Asia and should contribute to its recovery in the second half of the year.
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In this respect, the foreign trade figures for July and August were lukewarm, with a slowdown in exports after a good June. But in spite of their current lethargy, exports should contribute positively to growth in the third quarter if we take into account the low starting point of the second quarter, whose 4.9% drop is only matched, most recently, by the figures in 2009. Similarly, the recovery in exports since May has been based mainly on sales to the rest of the Asian continent, amounting to 50%, whose growth still appears robust.
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Industrial production continues its recovery but is slowing up.
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Industrial production is following the example given by exports, with a recovery that has already regained two thirds of what was lost with the earthquake, in spite of August's slowdown. An image that improves if we remember that June's industrial production of consumer goods exceeded the level prior to the catastrophe. Also construction, particularly weak in the second quarter, presented good figures for homes started in July.
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Where doubts become more evident is in investment and confidence indices. Consumers did not improve their expectations in August, remaining at the low level of 37.0 points, close to April's minimum of 33.1 points, while machinery orders, which provide an early indication of investment costs, fell back in July, reflecting the dominant feeling of uncertainty. In the case of prices, August's CPI, which was up 0.2% year-on-year, the same rate as in July, proved that the end of deflation is by no means consolidated. The core CPI, the general index without energy or food, which had not changed from July, dropped by 0.4% year-on-year.
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