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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