Chapter Five Economics Blog

http://ctv2.theglobeandmail.com/servlet/story/RTGAM.20090216.wjapanmarkets0216/business/Business/businessBN/ctv-business

Summary
On February 16, the Japanese government announced Japan’s gross domestic product contracted by 3.3 per cent in the fourth quarter last year from the previous quarter. This stat shows Japan’s economy is shrinking at the fastest rate in nearly 35 years due to the declining global export demand. Japan’s economy, the second largest in the world, shows no signs of recovery as the government also projected that the current quarter will also post a contracting GDP value. The global economic problem has hit the Japanese export-dependent economy hard as Japan’s export fell a record 13.9 per cent in the last quarter. This triggered many companies like Sony Corp. and Toyota Motor Corp. to cut thousands of jobs. Families are also feeling the pinch and are spending less due to rising number of unemployment. In 2008 overall, the value of Japan’s GDP shrunk by 0.7 per cent, which is its first decline in nine years.

Economic Indicators
Being this is the third consecutive drop for the GDP value, Japan’s economy is officially in amidst of a recession as when a country posts at least two consecutive quarters posting negative growth, the economy is deemed to be in a recession. The declining levels of the GDP, measuring the market value of total goods and services produced in a given time period, is mainly due to the shrinking global demand of Japanese products, causing Japan’s production of goods to plunge. This means less workers are needed to produce those goods, therefore more people are unemployed and are looking for a job. When Japan is not producing as much the curve representing the production of goods and services falls inside its production-possibilities curve and the curve shifts to the left. As production is slowing down, the type of the unemployment that the Japanese faces is either called demand-deficit unemployment or occupational dimension of structural unemployment, which are situations where employers find it more difficult to sell their products, mainly luxury items, so they layoff their employees. High levels of unemployment usually means there will be less spending in the economy, causing a chain reaction in that due to less spending even more jobs will be lost.

Reflection
Since Japan has many companies that depend on global export, their economic crisis is unavoidable. The slumping economies in the world render less demand for Japanese products such as cars, electronics, and appliances. To deal with the economic slowdown in Japan, the government should hire the workers who have lost their jobs in the manufacturing industry to improve on infrastructure. To prevent rising unemployment levels, the government should hire the unemployed to work on highway constructions, buildings development, and bridge upgrades. This way, the unemployed would get a job and spend more in the economy. In turn, the public benefits because of the infrastructure improvements. With more spending in the economy, the security of people’s jobs will be better, as well. During this economic slowdown, Japan should also consider diversifying their industries and not just depend on the export manufacturing industry for economic growth. They might want to consider expanding the tourist industry for the local Japan citizens, aimed at promoting spending within their own country. Although the short term outlook of Japan’s economy may seem bleak, the government can create a healthy economic recovery by employing more people and diversify their industries.