Monday, August 17, 2009

Recession over in Japan

Japan's economy broke free of recession in the second quarter, the government said Monday, expanding at an annual pace of 3.7 per cent on a strong rebound in exports.

The recovery in the April-June quarter was driven by robust demand for exports such as video recorders and other electronics goods, said Kingo Toyoda of the Cabinet Office. Shipments to China and other emerging markets were particularly strong. Exports grew 6.3 per cent from the previous quarter, the highest growth since the second quarter of 2002.

Government stimulus measures have also helped, such as cash handouts and incentives to buy ecological products — although economists warned that the impact of such measures may peter out.

Despite the increase in exports, economists said the nascent recovery could quickly run out of steam because domestic demand remains weak. Salaries are falling and the unemployment rate has risen to a six-year high of 5.4 per cent as companies such as Toyota Motor Corp. and Sony Corp. have cut thousands of jobs.

During the quarter through June 30, compensation for employees dipped 1.7 per cent, the data showed, while consumer spending edged up a tepid 0.8 per cent.

"When you look at the numbers, the contrast between external demand and internal demand is as clear as night and day," said Hiroshi Watanabe, economist with Daiwa Institute of Research in Tokyo. "With payments falling, it's really hard to expect individual spending to hold up."

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