In case you think we’ve got it bad, check out this Macquarie prediction of what is about to happen to our friends in Japan. The “Lost Decade” is about to become the “Lost Quarter Century.”
* Good morning. The headlines cannot get any worse these days. US 4Q08 GDP contracted 3.8%, the worst showing in a quarter century. If not for the massive inventory built up (worth US$6bn+) GDP would have declined by more than 5%. Businesses couldn’t cut production fast enough in response to waning customer demand and got stuck with excess inventories. Virtually all categories of goods showed noticeable declines – from consumers shopping for electronics, clothes, furniture and cars to corporate slashing on computer equipment, software and construction and among many others. As demand continues to shrink, layoffs intensify and inventory is destocked, GDP will look even weak in 1H09.
* Closer to home, a similar trend can be observed. Richard Jerram, our economist in Japan, wrote than Japan industrial production declined at such rapid rate that it is likely to head back to the 1983 level! The output of the electronic parts & devices (see figures) illustrates the case. The inventory in December surged by 21.1% over September levels on absolute level and relative terms on plunging shipments – they have almost doubled. This explains why our Japanese team has taken the centre stage lately to slash their earnings estimates across the board and the number of companies who came out to issue profit warnings was simply overwhelming.