Japanese
Economic Outlook
The country’s base rate is zero, its banking sector and wider
economy are a mess. Michael Wilson investigates the consequences
of a possible a Japanese collapse for Europe and the US
You never know, it might all be over by the time you read this.
America might have pulled itself out of the recession that seems
to have been looming for the last four months, and the US stock
market might be sailing back into blue water. Productivity might
be rising again, US consumers might be saving more of their
money as well as buying things, and the jobs situation might
have eased.
Then again, George Bush might have sworn eternal brotherhood
with China, Cuba might have become the 51st state, and pigs
might be seen flying north through the Manhattan skyline.
Japanese Economic Outlook - The Majority
No, the majority of analysts we’ve talked to recently are
agreed that we’re only kidding ourselves if we think that
America’s stock market troubles are over, because the profit
warnings from US companies are still coming in thick and fast.
Besides, they say, America’s advance-guess statistics are
always more optimistic and less pessimistic than the actual-result
statistics that follow on a month later when the Treasury is ready
to release them, so we can safely assume that the news is going
to get more gloomy, even after the real conditions have started
to improve. And if we think Europe can avoid being pulled into
the vortex that’s been building on the other side of the
Atlantic, then we’ll only have ourselves to blame when it
all goes wrong.
Admittedly, it’s pretty tempting to dismiss America’s
woes as a sideshow with only marginal relevance for Europe’s
stock market fortunes. The 15 countries of the European Union
and their half-dozen key European allies (Switzerland, Norway,
Hungary and the rest) represent a much more formidable economic
bloc than Stateside investors usually realise. Their combined
population of around 400 million is larger than the US and Canada
put together, and their joint economic product stands at around
nine trillion dollars (2000 figures), which is not that far
short of America’s ten trillion. Western Europe’s
average growth rate this year is running at nearly 2.8 per cent,
more than double America’s 1.1 per cent rate. Its industrial
production is growing by 5.1 per cent (America is managing just
1.2 per cent); and its inflation is just 1.6 per cent (America’s
is 3.7 per cent, and rising).
Japanese Economic Outlook & Europe's Stock Markets
What’s more, Europe’s stock markets are better valued,
less geared to debt and much more self-sufficient than those of
any North American country. Most continental markets have none
of the tired maturity of the US scene - instead, they are generally
bounding ahead on the back of a fast-growing consumer awareness
about the need for pension provisions and the like.
Euro zone investors are free from the worry about any drop
in the European currency, because its effects on their spending
power will be neutral. But none of this has stopped the European
stock markets from taking almost as big a hit as their US counterparts.
In the first 16 weeks of this year the FTSE Eurobloc 100 index
dropped by a crashing 17 per cent in dollar terms, almost exactly
matching the 16.5 per cent fall in the Standard & Poor’s
500 index. The only consolation that European investors could
draw was that in euro terms it looked a little less bad: the
Eurobloc was only down by 14 per cent, thanks to a slight weakening
of the European currency.
But it isn’t this that worries some of the analysts we’ve
spoken to. Some are beginning to worry about the terrible possibility
that a double crisis may be brewing which would wash away all
the defences designed to cope with one crisis at a time. Japan,
the world’s second largest economy is looking perilously
close to breaking point at the moment - and that’s just
not our own assessment but the actual words of its own finance
minister, speaking in March. If Tokyo were to crash while the
US market was still weakened, what would be the consequences
for Europe?
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