Monday, February 16, 2009

Japan's GDP is Crashing

From the NY Times:

Japan's economy contracted at the fastest pace in 35 years in the fourth quarter as a collapse in export demand drained life from the world's second-biggest economy.

Japan's gross domestic product, or the total value of the nation's goods and services, dropped at an annual pace of 12.7 percent in the October-December period, the government said Monday.

That's the steepest drop for Japan since the oil shock of 1974 and far outpaces declines of 3.8 percent in the U.S. and 1.2 percent in the euro zone. A survey of economists by Kyodo news agency had projected an 11.6 percent contraction.

Japan now faces ''the worst economic crisis in the postwar era,'' said Economy Minister Kaoru Yosano, according to Kyodo.

Let's place this number in perspective. There is no "formal" definition of depression. However, consider the following:

There is no widely-agreed-upon definition for a depression, though some have been proposed. In the United States the National Bureau of Economic Research determines contractions and expansions in the business cycle, but does not declare depressions.[1]

A proposed definition for depression is a sustained recessionary period in which the population is forced to dispose of tangible assets to fund every day living, as was seen in the US and in Germany in the 1930s.

Often, in Canada and the United States, the word "depression" is used interchangeably with "recession", often to simply indicate a deeper or more serious recession. Some economists require a fall in GDP of 10 per cent or more before a recession would be referred to as a depression

From a purchasing power parity perspective, Japan is the third largest economy in the world

I have nothing more to add.