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Japanese economy contracts sharply
in fourth quarter amid plummeting investment
In the fourth quarter, the Japanese economy contracted by 4.5% on an
annualised basis, which by far exceeded the already pessimistic market
forecast of 4.0%. Compared to the preceding quarter, GDP fell by 1.2%,
following the 1.2% decline in the second quarter of 2001 and the 0.5%
contraction in the third quarter. For all of 2001, the economy shrank
0.5%, which represents the first full-year contraction in three years. As
a result, Economy Minister Heizo Takenaka admitted that the official
government target of a 1.0% contraction in the current fiscal year to
March 31 is unlikely to be met. The fourth quarter contraction was led by
a 12.0% decline in business investment and a weak external sector. The
dismal reading exerts further pressure on Prime Minister Junichiro Koizumi
to boost the ailing economy with yet another fiscal stimulus package.
However, the room for manoeuvre on the fiscal front is limited: futile
attempts to revive the economy with excessive deficit spending have caused
public debt to mushroom to 140% of GDP. As a result, Koizumi has pledged
that his administration will stick to fiscal discipline and has committed
to limit issuance of government bonds to Yen 30,000 billion (US$ 233
billion), which will limit the ability of the government to kickstart the
economy. Panellists have maintained their forecast of a 1.0% contraction
for this year and also continue to see only a mild recovery of 1.0% next
year.
Euro Area economy likely to have
bottomed in fourth quarter
With final numbers for the Euro Area as a whole still pending, the signs
from the zones’ two largest economies Germany and France, indicate that
the area continued to slump in the fourth quarter. In Germany, the
economy contracted 0.3% in the final quarter last year compared to the
preceding quarter, as final demand remained weak both domestically and
abroad. Meanwhile, the French economy registered a 0.1% decline in the
fourth quarter (qoq), the first contraction in five years, as a slump in
exports forced companies to scale back production. Nevertheless, the
prospects for the Euro Area are improving. In Germany, the IFO index,
which measures business confidence, came in better than expected and the
European Commission’s economic sentiment indicator went up again in
February, although at a slower pace than in the previous month.
Consequently, the Europe’s finance ministers declared that the Euro Area
economy bottomed out in the fourth quarter of last year and that the
prospects for a sustained recovery in 2002 and 2003 are good. The
European Central Bank (ECB) shares the optimistic outlook and decided to
keep the benchmark interest rate unchanged at 3.25%. The Consensus
remains unchanged from last month and continues to expect economic growth
of 1.1%.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing for Latin America. For
more details please click here.
For five-year forecasts,
please click here.
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