International | Oct 02 2008
By Chris Shaw
A slightly weaker than expected Tankan survey of business conditions in Japan leads Danske Bank to suggest the world’s second largest economy is now in recession.
The deterioration in business conditions in the September quarter can be seen in the current conditions diffusion index for large manufacturers, which recorded a negative 3 reading against market expectations of negative 2. According to Danske Bank this weakness is expected to continue into the December quarter.
While the data indicates a recession, the bank points out the positive is the recession doesn’t appear as deep as the two previous recessions in 1998 and 2001 as both exports and corporates are continuing to perform reasonably. Having said that the bank does suggest risk is to the downside for both business investment and exports at present.
The other issue is planned capital expenditure is also weakening, with the outlook now for the economy to record no GDP growth in the September quarter and an increase of 0.5% in the fourth quarter. Risk is to the downside for both numbers.
Looking further ahead Danske Bank sees scope for the economy to recover somewhat in the first half of next year on the back of lower inflation and a stabilising of the global economy. In terms of policy Danske sees the Bank of Japan as making no changes to interest rates for the next 12 months, an outlook in line with current market expectations.