Japan is preparing for early elections after the economy entered into a technical recession, increasing the chances that Prime Minister Shinzo Abe delayed plans to raise the value added tax of country next year and submitted to a new term.
The preliminary data released yesterday for the period between July and September were much worse than expected by the market, to show that the economy shrank 1.6% quarter on an annualized basis. Analysts had expected growth of 2.2%.
The collapse is a blow to the “Abenomics” the most ambitious attempt to revive the Japanese economy from stagnation two decades. The new country’s problems coincide with growing international concern about the health of the global economy. Over the weekend, world leaders attending the G-20 rated global recovery “slow, uneven and not generate the jobs needed.”
Given that Russia and Brazil are mired in recession or stagnation, like Japan and the euro flirted with another crisis in the third quarter, an increase of only 0.2%, many of the major engines of global expansion is faltering.
Although it is likely that global growth is nearing the average of the last 30 years in 2014 as it is expected to improve moderately next year, David Cameron, the British prime minister, reflected the climate on Monday, saying, “the red lights flashing back to look again at the dashboard of the global economy.”
“The eurozone is on the verge of a possible third recession, with high unemployment, a fall in growth and the real risk that also lower prices. Emerging markets, which were the engine of growth in the early stages of recovery, are slowing down, “he wrote in the Guardian.
The last contraction in Japan followed a VAT hike in April, which affected the consumer spending. Because it is very likely that Abe delayed a second tax hike, which came into force was scheduled for next October until April 2017. His aides have indicated that also call general elections, as it seeks to take advantage of the weakness and fragmentation of opposition parties.
The decisive factor that caught economists off guard was a sharp decline in stocks of the companies, which subtracted 0.6 percentage points to the official GDP figures. If inventories had not changed, quarterly growth would have been 0.2%.
However, excluding inventory, which from now on will be a difficult thing to predict-the consumption figures households and capital spending showed that Japan’s recovery after the VAT hike in April, from 5% to 8%, has been “very, very slow,” warns Kazuhiko Otagai, chief economist at Credit Agricole in Tokyo.
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