In volume terms, exports plunged by an astonishing 14.5% m/m in November. This is the largest monthly drop in exports ever recorded since Japan started compiling this data in 1975. Import volumes fared better in November and only declined 2.3% m/m. The very weak November export figures are consistent with recent data like manufacturing PMI (see chart 3) and machine toll orders (see chart 7), both indicating a near collapse in foreign orders. In addition, the very weak export numbers are consistent with recently-released export figures in China, South Korea and Taiwan (see chart 9).
The export numbers indicate that industrial production in Japan is likely to slow sharply in coming months (see chart 4). We expect the industrial production figures to be released later this week to show a 6% m/m drop in production; they could turn out to be even weaker based on todays very weak export figures. In addition it increasingly looks like the current downturn in industrial activity in Japan will be considerably deeper than during the 2000/2001 recession (see chart 4).
Because of the sharp plunge in exports, the Japanese trade balance has turned into deficit despite the recent declines in crude oil and commodity prices (see chart 1). The Japanese current account surplus will certainly be reduced significantly and a deficit in 2009 cannot be completely ruled out.
Outlook: We will have to revise down our current forecast of a 0.5% q/q contraction in GDP. Based on the development in exports in November, foreign trade will probably deduct more than 0.5pp from GDP growth in Q4. Hence, we now believe that the Japanese economy is likely to contract by close to 1% q/q in Q4.
The export numbers indicate that industrial production in Japan is likely to slow sharply in coming months (see chart 4). We expect the industrial production figures to be released later this week to show a 6% m/m drop in production; they could turn out to be even weaker based on todays very weak export figures. In addition it increasingly looks like the current downturn in industrial activity in Japan will be considerably deeper than during the 2000/2001 recession (see chart 4).
Because of the sharp plunge in exports, the Japanese trade balance has turned into deficit despite the recent declines in crude oil and commodity prices (see chart 1). The Japanese current account surplus will certainly be reduced significantly and a deficit in 2009 cannot be completely ruled out.
Outlook: We will have to revise down our current forecast of a 0.5% q/q contraction in GDP. Based on the development in exports in November, foreign trade will probably deduct more than 0.5pp from GDP growth in Q4. Hence, we now believe that the Japanese economy is likely to contract by close to 1% q/q in Q4.
