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Hitachi Research Institute

Economic Outlook

Latest economic forecasts for Japan, the U.S., Europe, and China, etc

Dec. 2008 Short-term Economic Outlook Summary

World economy falls into deflationary depression in 2009

Subprime-loan crisis has expanded into the first world financial crisis since 1930’s. Recession apparently had started from the end of 2007 in Japan and the U.S., and from the spring of 2008 in Europe, then their economies dropped sharply in September when Lehman Brothers went bankrupt. This shock affected developing economies, and caused world-wide concurrent steep decline in stock prices, sharp credit crunch and abrupt fluctuation of exchange rates, then led the world into concurrent depression.
In the financial summit of November, all countries confirmed that they act in harmony. Central banks in Europe and the U.S. are cutting policy rates and starting unrestricted supply of liquidity into short-term credit markets, and will eventually take steps forward quantitative easing policy. Also the financial authorities are injecting public money into banks. In addition to financial bailing out, economic stimulative packages are being undertaken or planned all over the world to resist recession and deflationary pressure caused by credit crunch.
However, the trend of credit crunch is assumed to remain until 2010 when U. S. house prices are expected to hit the bottom. And the economic stimulative packages, especially European and Japanese ones, are not large and effective enough. It is doubtful if the packages can diminish deflationary pressure. It is hard to expect that the economies will recover sharply.
The world economy is falling into deflationary depression. World total real GDP growth rates will be 3.3% in 2008, and 1.1% in 2009. In 2009 the GDP growth rate will go deeply under 3% which is the border between good and bad times.
U. S. over-consumption will no longer support the world effective demand. This adjustment is not cyclical but structural, and will take some time till 2010. Next effective demands will come from construction of new society, in which ecology friendly equipment and systems will bring low carbon emission, and multi-pillar powers will emerge, as developing economies will grow faster than developed economies.

Japanese Real GDP will shrink in two consecutive fiscal years of 2008 and 2009

The Japanese economy seems to have fallen into recession since October-December in 2007, and then it began to fall sharply in the second half of the fiscal year 2008, because of the Lehman Brothers’ bankruptcy in September. It will continue negative growth for five consecutive quarters until April-June in 2009. In fiscal year 2009, contribution of net foreign demand to the economic growth will be negative -0.9% due to the stronger yen and the decrease in export. Corporate profits are squeezed, so investment will continue to decrease. Weak household income will lead to weak private consumption and residential investment. On the other hand, the fall in crude oil prices (from 91 to 50 dollars/barrel) will cause income inflow of 3 trillion yen annually and raises the growth rate by 0.6%. The economic stimulative package announced on 12 December by the government, of which scale is 10 trillion yen, will bring about the first effective demand of 2 trillion yen. It, including multiplier effect, will raise the fiscal year 2009 growth rate by 0.5%. Although it still does not have the power of bouncing back the recession, the decrease in export and the bearish pressure of credit crunch, it will prevent Japanese economy from spiraling down in fiscal year 2009.
Japanese real GDP growth rates will be negative for two consecutive years, -1.0% in fiscal year 2008 and -1.1% in fiscal year 2009.

World Economic Outlook

World Economic Outlook0812

World Economic Outlook0812-2

Japan’s Economic Outlook


Japan`s  Economic Outlook0812-2

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