Japan Back In Recession; Unpredicted Drop in GDP

posted by Richard Katz on November 17, 2014 - 10:09am

Passers-by are reflected on an electronic stock quotation board outside a brokerage in Tokyo
Passers-by are reflected on an electronic stock quotation board outside a brokerage in Tokyo, November 17, 2014. CREDIT: REUTERS/ISSEI KATO

The big picture is that 2014, so far, remains worse than 1997. Not a single major forecaster predicted that GDP would drop in July-Sept. The consensus forecast was in the 2.2-2.5% range, depending on the survey. Instead, GDP fell 1.6% (annualized rate). Instead, GDP fell 1.6% (annualized rate). GDP is now down a cumulative 2.3% (not annualized) since the tax was hiked on April 1. In 1997, at this stage of the game, GDP was down just 0.5%. Two big differences from 1997. Prime Minister Ryutaro Hashimoto kept cutting government spending even after Japan went into recession. Shinzo Abe will not repeat that error. Secondly, the trade surplus is up this year; it was down in 1997. This is not because exports have done well this year, but because imports have fallen even faster.

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