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Japan's slow growth in the spotlight
By Alex Frew McMillan
TOKYO, Japan (CNN) -- The tortoise-like pace of growth for Japan's economy will be the economic focus in that country this week, contrasting sharply with China. Asia's biggest economy, second in the world only to the United States, reports gross domestic product for the third quarter on Wednesday. Economists expect growth of around 0.6 percent for the third quarter, over the previous quarter, or around 2.3 percent to 2.5 percent when annualized. But there's room for a disappointment, with some economists pegging annualized growth closer to 1.8 percent. That would be a little off the pace of the second quarter, when Japan netted 2.6 percent annualized growth. Far cry from ChinaIt would also be a far cry from the zesty pace of growth in China. China's economy is headed for an 8 percent increase this year, a senior planning official said on Sunday. "This year, China's GDP is expected to exceed 10 trillion yuan ($1.2 trillion), an increase of some 8 percent compared with last year," Zeng Peiyan, head of the State Development Planning Commission, said on Sunday. (China eyes growth) That would reinforce China's role as the fastest-growing economy in Asia and an increasingly important player in the region. China is looking to create a free-trade zone with the 10 member nations of the Association of Southeast Asian Nations, and put pen to paper to that effect last week. That's a move that analysts say left Japan playing catch-up. Japan reached its own agreement on ASEAN free trade, but experts say farm goods and hefty tariffs on other products are likely to prove sticking points over a decade of negotiations. (Full story) Exports flagging in JapanJapan is steadily working its way out of last year's recession, its heaviest in a decade. China, on the other hand, only saw a minor dip in growth. The pace of China's economy has actually been speeding up this year, reaching 7.9 percent for the first three quarters. Exports have been booming, jumping more than 19 percent over the same time, to $233 billion.
Japan has also been looking to exports as its key driver for recovery. But those hopes have been dented as the year wears on. Thanks in part to slowing exports, Japan's current-account surplus slipped into negative territory for September for the first time in a year. The balance fell 6.8 percent over the same time last year, fresh data showed on Monday. (Full story) The yen has strengthened throughout 2002, hurting sales of Japanese goods overseas, by making them more expensive, and denting profits when they are shipped back to Japan. The currency has gained 11.2 percent on the U.S. dollar since the end of February, when it was trading almost at 135 to the dollar. It stands at 119.53 on Monday afternoon, having broken through the 120 mark on Friday, and some pundits say it could move to 115. Domestic demand picking upThanks partly to the effects of the yen, net exports will be a negative for Japan in the third quarter, according to Richard Jerram, ING Barings chief economist. "Exports seem to be stalling and there are some signs this is already being felt by industrial production," Jerram said in a note to clients. But this year's modest recovery has at least helped businesses to work out the worst of their problems. "The low level of inventories is the main reassurance that another series of output cuts are not just around the corner," Jerram said. Domestic demand is showing signs of recovery in Japan, but that would be jeopardized by a further slip in exports. Still, capital investment likely rose around 1.3 percent for the third quarter, according to estimates from Barclays Capital, nudging domestic demand up 0.8 percent for those three months.
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