Japan Avoids Recession

Analisi Giornaliera - 08/12/2015

Third Quarter Japanese GDP Estimate Prints Higher Than Anticipated

Japan’s annualized and quarterly indicates advancement in the economy confirming that the country was not in a recession earlier this year. Japan’s year on year value for the third quarter was way above estimates of 0.10% and previous values of -0.50%, advancing 1.00% whereas quarterly GDP estimates showed a value of 0.30%, beating earlier estimate of -0.10%.

BOJ Considers Negative Deposit Rates Irrelevant

While the ECB cut its deposit rates by 10 basis points to -0.30% on Thursday, Bank of Japan Governor Haruhiko Kuroda said Monday that the Central Bank does not need to adopt negative deposit rates after keeping the country’s monetary policy steady for more than a year. Japan’s borrowing costs are already quite low because of their substantial quantitative easing. The BOJ 0.10% deposit rate cannot mirror the ECB’s move as this will lead to an insufficient pool of bonds it buys to expand the monetary base. Japan’s economic fundamentals have become more resilient to external shocks and the economy is becoming more stable as evidenced by the data. In his comments, Kuroda underscored that the Central Bank has “the capability as well as the strong will” to achieve its inflation target of 2.00% at the earliest possible time.

German Industrial Output Rises

Germany's industrial production rebounded in October after three months of decline, though the growth was far less than expected. Data from the Economy Ministry in Berlin showed production advanced by 0.20%, beating September’s drop of -1.10% but not exceeding analyst estimates of 0.70%. Germany has showed signs that its manufacturing engine has recovered slightly at the start of the fourth quarter after a rough patch during the summer. The decline of -5.90% in monthly energy production restrained industrial production in October while weaker production numbers were obtained from factories who make intermediate and consumer products. Capital goods output increased 2.70% as a result from the 0.70% rise in manufacturing while production of intermediate goods decreased -1.10%. As the ECB is preparing to boost the Euro Area economy, domestic demand is predicted to rise in the coming year, benefiting the German export machine.

Russia’s Economy

Russia’s economy has appeared to be somewhat more resilient than anticipated according to Russian President Vladimir Putin. Forecasts indicate the nation’s output will contract by -4.00% this year, less than initial forecasts with the outlook set to stabilize the following year. However, should oil prices continue to trend near multi-year lows, the following year’s budget foresees a -3.00% deficit assuming oil at $50 per barrel. With prices currently standing much lower, a rebound to these levels might not be in the cards over the near-term considering the latest OPEC decision. Without measures aimed towards restraining social spending and revitalizing the military, Russia could hit serious financial difficulties within two or three years. Government officials state that President Putin recognizes the need for improvement, but has opted to postpone critical measures until after the 2018 presidential election to avoid risks to stability. Delays have left Russia lagging further behind advanced economies, further denting the Ruble.

China Trade Balance

Trade Balance data from China on Tuesday showed a sharp decline in the surplus, amplifying concerns about ripple effects from the country’s economic slowdown into developed economies. The value of imports showed some improvement in the latest reporting period, citing a -8.70% annualized contraction in November compared to the prior month’s -18.80% slide, hinting that impact of stimulus measures might finally be felt through the economy. Exports continued to feel the pinch, experiencing a drop of -6.80% over the last year, not far from last month’s reading of -6.90%, but not meeting expectations of a -5.00% contraction as forecasted. As a result, the trade surplus narrowed to $54.10 billion from a record high last month of $61.64 billion. Decelerating economic activity not only means China is buying less from overseas, but obtaining less money from shipments too, as prices fall and buyers in markets such as Europe and Japan curb purchases.