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Japan joins Europe in recession

Japan joins Europe in recession
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First Published: Mon, Nov 17 2008. 09 22 AM IST
Updated: Mon, Nov 17 2008. 09 22 AM IST
Tokyo: Japan sank into recession in the third quarter, even before it felt the full force of the financial crisis, and world leaders at a weekend summit gave investors little hope they could rescue the global economy.
With the euro zone also in recession, the US economy shrinking in the third quarter and China slowing sharply, markets shrugged off pledges to stimulate growth from leaders of the Group of 20 nations.
The yen and US dollar pressed higher as investors pulled cash away from emerging markets and riskier assets. Oil fell more than $1 to below $56 a barrel and stock markets slid in early Asian trading.
While the Japanese economy was weakening, the pace of the decline was unexpected. Analysts polled by Reuters had predicted the economy would expand 0.1%. Instead it shrank by 0.1% as exports crumbled faster than they had thought.
The third-quarter data did not capture the full impact of the crisis that exploded in September, destroying Wall Street banks and threatening to rupture the global financial system.
Japan had largely escaped the first shockwaves of the crisis triggered last year by US mortgage defaults. It felt the first major tremors in October when the Tokyo stock market crashed forcing banks to try to replenish capital and the yen surged, sideswiping exporters facing their toughest markets in decades.
Fiscal and monetary steps
The euro zone is in its first recession and the US economy only avoided one earlier this year because of a stimulus plan. Most economists say the United States is probably already in recession, although official data confirming that will not come until January.
Leaders of the world’s 20 largest economies, meeting in Washington over the weekend to address the worst financial crisis in 80 years, agreed on a host of fiscal and monetary steps to rescue the global economy.
But they left it to individual governments to tailor their response to their own circumstances and troubled industries.
The post-meeting statement from the group of major industrialized and developing countries contained a laundry list of reform pledges aimed at soothing volatile markets and calming consumers’ worries.
The G20 statement said that all financial markets, products and participants would be subject to supervision, vowed tougher accounting rules, a review of compensation practices and greater cooperation between national regulators. Even the long-running Doha round of free-trade talks was given a new lease on life.
Finance ministers were told to develop specific plans for implementing the recommendations.
The first set of actions is to be completed by the end of March, and a follow-up meeting will be held by the end of April.
US President-elect Barack Obama sent emissaries to the event, and issued a statement in support of a coordinated response to the global financial crisis.
With a $700 billion fund promised to stabilise the battered US financial system, the outgoing Bush administration and its successor must tackle the urgent question of how, or whether, to rescue the nation’s “big three” automakers.
The Senate is due on Monday to begin debating emergency legislation to provide $25 billion in aid to General Motors Corp, Ford Motor Co and Chrysler LLC.
As well, US Treasury Secretary Henry Paulson is due to speak on the economy and markets later on Monday.
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First Published: Mon, Nov 17 2008. 09 22 AM IST
More Topics: Financial Crisis | Japan | Recession | Europe | Economy |