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Japanese government more optimistic
about economic prospects
Some of the government measures seem to have helped lift the ailing
Japanese economy from the tight recessionary grip and have prompted rising
optimism among government officials over the outlook of the domestic
economy. On 10 April, the Japanese government Cabinet Office’s report for
April stated that signs of a rebound are emerging as overseas demand is
driving exports and industrial production, which is generating the
much-needed support for the domestic economy. This represents the second
consecutive month that the Japanese government upgraded its assessment of
the economy. The more favourable setting has already prompted some
improvement on the labour market. Unemployment dropped from the historic
high of 5.5% in December to 5.3% in February.
Bank of Japan joins chorus of
optimism but private sector analysts remain sceptical
The Bank of Japan (BoJ) joined the government in a more optimistic
sentiment about the economy. In its April report, the Bank stated that
the economy will eventually hit bottom and rebound, as production
increases and corporate profits bounce back, provided that exports
continue to recover steadily. And the Bank's latest Tankan business
survey showed that confidence among large manufacturers was unchanged over
the previous quarter after four quarters of declines. Consequently, the
BoJ decided to leave monetary policy unchanged although monetary
authorities also stated they would be ready loosen monetary reins again if
the economy threatened to drop off again. Despite the tentative signs of
a mild recovery, the Japanese economy remains haunted by severe structural
problems, in particular in the financial services industry, which remains
under a heavy burden of bad debt. Panellists polled by LatinFocus remain
cautious over the prospects for a recovery and have raised their forecast
by just one tenth of a percentage point since last month, anticipating a
recession of 0.9% this year.
Increased optimism about a recovery
of the US economy is slowly spilling over to Europe
In its recent quarterly report on the Euro Area, the European Commission
states that the economic prospects for the Euro Area have brightened since
the beginning of the year. The Commission acknowledges that downside
risks to the European economy continue to exist and that so far evidence
of a recovery remains restricted to survey indicators, whereas official
data on actual economic activity do not yet corroborate a more optimistic
attitude. In fact, when measured on a quarter-on-quarter basis, GDP in
the Euro Area dropped by 0.2% in the fourth quarter of 2001, according to
Eurostat’s first release of national accounts. The contraction follows on
a 0.2% increase (revised upwards from 0.1%) in the third quarter 2001 and
marks the first decline since 1993. When measured on year-on-year basis,
GDP growth decelerated from 1.4% in Q3 to 0.6% amid widespread depletion
of stocks, while the contributions to growth from final domestic demand
and net exports were neutral. However, the Commission claims that the
latest leading and labour market indicators releases suggest that the odds
seem favour accelerated economic growth in the second half of this year.
A recently developed European Commission indicator-based forecast model
for the Euro Area augurs for a pickup in economic activity. According, to
the latest release from 11 April, the model forecasts a quarter-on-quarter
growth rate range between 0.2% and 0.5% for the first quarter of 2002. In
the second quarter of this year, economic growth is seen to pick up to at
a 0.5% to 0.8 % pace, up 0.1 percentage point from the previous forecast
published on 12 March 2002. Consensus Forecast panellists are even more
optimistic and have revised their forecasts for 2002 as a whole upward by
0.2 percentage points since last month, expecting a GDP expansion of 1.3%.
Chart
4: GDP Growth in the Euro Area (quarter-on-quarter)
Source:
Eurostat and European Commission.
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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