Vol. 5 Num 263 Tue. February 22, 2005  

Japan, Germany cloud G7 economic outlook

Dismal performances by the Japanese and German economies last year, tipping into recession for Japan, highlight structural problems for some analysts but are just a temporary "hiccup" for others.

For the OECD, the figures are disappointing and mean in any case that the recovery of the Group of Seven richest economies will be delayed by a quarter.

However, analysts have also noted that these two lagging economies are pushing out exports successfully and driving up their trade surpluses but are handicapped by weak internal consumption.

This contrasts with some other industrialised countries which have achieved high growth -- the United States, Britain and Australia -- but are having trouble on the export side and are running rising trade deficits.

The chief economist at the Organisation for Economic Cooperation and Development (OECD), Jean-Philippe Cotis, said at the end of last week that the global recovery, after a disappointingly weak close to the year in a number of G7 countries, would "be delayed by a quarter".

He spoke the day after revised data had revealed that the Japanese economy contracted in the last three quarters of 2004, and two days after official figures from Germany had shown that the German economy had shrunk by 0.2 percent in the fourth quarter of 2004.

By contrast, Britain, widely recognised as being a leader rather than a laggard regarding economic restructuring, reported that unemployment was at the lowest level since June 1975 at 2.6 percent. And US Federal Reserve Chairman Alan Greenspan forecast that the US economy would grow by 3.75-4.0 percent this year.

Economist Jean-Luc Greau, author of "The Future of Capitalism", argued that the figures for Japan and Germany were evidence of "significant trends, identified in the 1990s and which were structural in nature".

Greau explained: "Germany is a 'world champion' exporter, with a record trade surplus of 155 billion euros (201.24 billion dollars) in 2004, and Japan has the highest surplus for five years of 89.4 billion euros.

"These countries are, on the evidence, very competitive exporters, but they are not able to stimulate their internal economies," said Greau.

The head economist at the German economic institute Ifo, Gernot Neb, held that Germany, the largest economy in Europe, would begin the new year on a firmer footing after the soft end to 2004.

"It's a growth hiccup and not the start of a recession," he said.

Forecasts from the OECD show the German economy expanding by 0.5 percent in the first quarter of 2005 and Japanese output growing by 0.4 percent over the same period.

Economists at French investment bank BNP Paribas, Ryutaro Kono and Caroline Newhouse-Cohen, also expect Japan to recover immediately.

"The Japanese economy hit the bottom in the fourth quarter" and "should bounce back in the first quarter, underpinned by the growth in exports", they said.