Japanese economy worse than forecast

14 February 2013 Last updated at 05:33 GMT Watch: Rupert Wingfield Hayes reports from Tokyo that there are "increasing signs" of a pick up in the Japanese economy.

Japan's economy contracted for the third straight quarter in the three months to end of December, underlining the challenges the new government faces in reviving growth.

The economy shrank 0.1% compared with the previous three months. Most analysts had forecast growth of 0.1%.

That is equivalent to an annualised dip of 0.4% in gross domestic product.

Japan's growth has been hurt by a drop in exports to key markets as well as subdued domestic consumption.

"The biggest reason for the decline in gross domestic product (GDP) is external demand was weak and domestic demand did not recover as quickly as we thought," said Shuji Tonouchi of Mitsubishi UFJ Morgan Stanley Securities in Tokyo.

Meanwhile, Japan's central bank, the Bank of Japan (BOJ) left its interest rates unchanged at between zero to 0.1%.

However, it rejected a proposal to keep the rates at that level until its target of achieving a 2% rate of inflation is met.

The central bank had set that target last month, in an attempt to spur domestic demand.

Japan has been fighting deflation, or falling prices, for best part of the past decade.

That has hurt domestic demand as consumers tend to put off purchases in the hope of getting a cheaper and better deal later on.

Many analysts have said that stoking inflation is key to spurring Japan's domestic consumption.

Bottoming out? Continue reading the main story

The economy has contracted for three straight quarters, but the third quarter was the worst and fourth quarter data show the pace of decline is slowing”

End Quote Shuji Tonouchi Mitsubishi UFJ Morgan Stanley Securities Japan's new government led by Shinzo Abe has said that reviving the country's economy is its top priority.

Last month, it approved a fresh 10.3 trillion yen ($116bn; £72bn) stimulus package in an attempt to spur a revival in the economy.

The package, which includes infrastructure spending, as well as incentives for businesses to boost investment, is estimated to boost Japan's economy by 2% and create 600,000 jobs.

Japan's central bank also expanded its asset purchase programme in January, which is to expected to pump billions of yen into the economy.

Analysts said these moves were likely to help spur growth in the Japanese economy in the current quarter.

"The economy has contracted for three straight quarters, but the third quarter was the worst and fourth quarter data show the pace of decline is slowing," said Mr Tonouchi of Mitsubishi UFJ Morgan Stanley Securities

"Data show that overseas economies are recovering, so we expect Japan to return to growth in the first quarter.

"The economy is still on the recovery track," he added.

Yen effect

The measures by the central bank, coupled with the hopes that it may ease its policies further in the coming months, has had a big impact on the yen.

The Japanese currency has dipped more than 15% against the US dollar since November last year.

Continue reading the main story A weak currency bodes well for Japanese exporters as it makes their goods more affordable to foreign buyers, but also helps boots their profits when they repatriate their foreign earnings back home.

Analysts said the timing of the drop in yen's value has been great for the exporters.

"We are nearing the end of the financial year, a time when leading exporters will be looking at closing their books and transferring their overseas earnings back to Japan," Martin Schulz of Fujitsu Research Institute told the BBC.

Mr Schulz said that given the sharp drop in yen's value, leading exporters were likely to see profits exceed their previous forecasts.

He explained that a profit boost would mean that firms were likely to have much more cash available for investment.

"As global demand begins to rise and Japan's goods become more affordable, companies are likely to use that cash pile to expand their facilities.

"That will help boost Japan's economy further in the coming months." Mr Schulz added.

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Shale oil 'to boost world economy'

14 February 2013 Last updated at 00:01 GMT Fracking has been blamed for the pollution of water supplies and causing earth tremors Shale oil production could boost the world economy by up to $2.7tn (£1.7tn) by 2035, according to a report.

The extra supply could reach up to 12% of global oil production, or 14 million barrels a day, and push global oil prices down by up to 40%, PricewaterhouseCoopers said.

Shale oil and gas have emerged as a viable way to boost energy supplies.

However, there are concerns over the process by which the gas is extracted, known as fracking.

In fracking, a mixture of water, sand and some chemicals is pumped into a well under high pressure to force the gas from the rock. It has been linked to minor earthquakes, and there are concerns about its impact on the environment.

In its report, PwC said that the level of global growth could increase by around as much as 3.7% by the extra supply of shale oil, which is the equivalent of adding an economy roughly the size of the UK to the total world economy by 2035.

But the benefits of oil price reductions due to shale oil will vary significantly by country.

Current major oil exporters, such as Russia and the Middle East, could be "significant net losers in the long term unless they can develop their own shale oil resources on a large scale", it said.

Last month, China stepped up its efforts to explore shale gas reserves by awarding exploration rights on 19 shale gas areas to 16 firms.

Demand for energy in China has surged in recent years as its economy has expanded. The country is now the world's biggest energy consumer.

In December, the UK government gave the go-ahead for a firm to resume fracking to exploit gas in Lancashire, which was stopped after two tremors near Blackpool.

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Analysis: In the end, Obama won on the economy

U.S. President Barack Obama, who won a second term in office by defeating Republican presidential nominee Mitt Romney, waves as he addresses supporters during his election night victory rally in Chicago, November 7, 2012.

Credit: Reuters/Jim Bourg

By Andy Sullivan

WASHINGTON | Wed Nov 7, 2012 2:27am EST

WASHINGTON (Reuters) - In the end, President Barack Obama won re-election on the issue that was supposed to send him packing: the sluggish U.S. economy.

The United States is still digging out from the deepest recession in 80 years, and employers are barely adding enough jobs to keep pace with population growth. Trillions of dollars of household wealth have vanished in the housing bubble, while the gap between rich and poor widens.

But historically, voters have given a second term to incumbent presidents who preside over even modest economic growth during an election year.

That pattern appears to have held for Obama. If the economy is not exactly roaring ahead, it improved steadily over the course of the year.

"It was never going to be a landslide," said John Sides, a political science professor at George Washington University. "But it was always his race to lose."

The Democratic president took major steps to boost the economy, but they did not seem to help him much in the eyes of voters. Polls show deep divisions on the merits of his 2009 stimulus, his Dodd-Frank financial reforms and the auto industry bailout.

But they made a difference in one important place. Obama campaigned heavily on the auto bailout in Ohio, where 1 in 8 jobs is tied to the industry.

That may have helped him limit his losses there among white men, a slice of the electorate that Romney won heavily elsewhere.

According to Reuters/Ipsos exit polls, Obama lost white men nationwide by 21 percentage points. In Ohio, he lost white men by only 12 points.

Obama was also helped by the fact that voters largely blame the recession on his Republican predecessor, President George W. Bush. Obama made that a central part of his campaign message as he argued that Romney would bring back policies that precipitated the crash.

If the Romney campaign wanted to focus the election on Obama's economic stewardship, the Obama campaign wanted to make it a choice between two candidates.

Obama's campaign attacked early with a barrage of negative advertising that painted the multimillionaire former private-equity executive as a corporate raider with little concern about the fortunes of ordinary people.

The attacks drew unflattering comparisons to Obama's historic 2008 run for office, but they discredited Romney in the eyes of many voters.

"A lot of middle-class white people who don't have a college degree came to the conclusion that Romney's just not one of us," said Potomac Research Group analyst Greg Valliere.

GRIDLOCK AHEAD

Obama's narrow re-election victory will not strike fear in the hearts of Republicans, who remain in control of the House of Representatives. Obama's Democrats held on to the Senate, but fewer moderates of either party will be in the mix.

That is a recipe for more gridlock and white-knuckle showdowns over taxes and spending. Reaching consensus on even the most routine legislation will be difficult.

"There's not going to be a lot of goodwill on the Hill," said Princeton University history professor Julian Zelizer. "The party lines will be hardened after this election."

The increased polarization may make governing more difficult, but it made campaigning easier for Obama. In an age of intense partisan sentiment, Obama enjoyed more reliable support from members of his own party than his Democratic predecessors Jimmy Carter and Bill Clinton.

"There are just a lot fewer people who are going to shift from one candidate or another. They're just a lot more hardened on either side," said Taylor Griffin, who advised Republican nominee John McCain during the 2008 campaign.

For Republicans, Obama's re-election poses uncomfortable questions.

For the second election in a row, the Republican presidential candidate has been unable to win more than 1 in 3 Hispanic voters, and the party could have an increasingly difficult time competing in national elections if it fails to make inroads among that rapidly growing slice of the electorate.

The party's gravity center now rests in the House of Representatives, where many lawmakers represent solidly conservative districts. They face little incentive to compromise on issues like immigration reform that could anger their base of older, white voters.

Romney had to overcome lingering suspicion from conservatives during the drawn-out battle for the Republican nomination, and he was unable to appeal to independent swing voters until the campaign's closing month.

But many in the party are likely to conclude that they will be better off nominating a more conservative candidate next time, said Brookings Institution fellow John Hudak.

"The party is going to move right," he said. "The line is going to be, 'See, we shouldn't have nominated a moderate.'"

(Editing by Marilyn W. Thompson and Peter Cooney)

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Economy may skirt direct hit from Hurricane Sandy

People watch as storm clouds blow over the Manhattan skyline in New York, October 29, 2012.

Credit: Reuters/Keith Bedford

By Pedro da Costa, Luciana Lopez and Leah Schnurr

WASHINGTON/NEW YORK | Mon Oct 29, 2012 9:33pm EDT

WASHINGTON/NEW YORK (Reuters) - Hurricane Sandy is shaping up to be one of the biggest storms ever to hit the United States but even with the severe damage that is expected, the blow to the economy is seen as short-term.

Economists say some of the impact caused by businesses closing will be offset by reconstruction efforts, and point to catastrophic storms like Katrina, which devastated New Orleans but did not deal lasting damage to the national economy.

Still, Sandy's sheer breadth - 10 states have declared a state of emergency - means it could hurt this quarter's economic output, even if the long-term impact ultimately proves neutral.

Gross domestic product in the region between New York and Washington amounts to some $2.5 trillion, so every day the region's economy is halted amounts to about $10 billion in lost output, said Mark Zandi, chief economist at Moody's Analytics.

Peter Morici at the University of Maryland estimates that Sandy will cause about $35 billion to $45 billion in losses and damages but then be followed by as much as $36 billion in recovery spending.

Damage caused by last year's Hurricane Irene totaled as much as $20 billion, he said.

Predicting the impact of Sandy is made all the harder by complexity of the rare, hybrid "super storm" involving other weather systems that could get trapped over the Northeastern United States and amplify inland flooding.

"The range of possible scenarios for Hurricane Sandy remains enormous. There are examples of natural disasters ultimately exacting only minimal toll - Irene - and others having an outsized impact, such as Hurricane Katrina when the (New Orleans) levees broke," said Eric Lascelles, chief economist RBC Global Asset Management Inc. "Really, it is a game of probabilities."

Disaster modeling company Eqecat forecast economic losses caused by Sandy at $10 billion to $20 billion.

The toll from Katrina in 2005 exceeded $100 billion by most accounts. U.S. economic growth slowed in the quarter after the devastation inflicted on New Orleans but bounced back quickly.

The U.S. economy grew 2 percent in the third quarter of 2012, picking up from earlier in the year but still a weak number, as consumer spending helped to offset a worrisome pullback in business investment. Many analysts were already concerned that retail sales could suffer later this year.

Retailers bear a significant brunt of any storm's economic impact as shoppers stay at home. But the last-minute scramble for supplies and emergency goods has a moderating effect on the overall sales declines.

Still, Evan Gold, a senior vice-president at Planalytics, a Philadelphia consulting firm that advises businesses on weather-related matters, was less optimistic about seeing any upside, particularly with Sandy hitting so close to the holiday season.

"If consumers in this part of the country are spending hundreds, if not thousands, of dollars to buy things like generators, or after the storm, to do clean-up, that is likely going to cut into budgets that people might have for their holiday shopping," said Gold.

FORECASTERS CHANNEL METEOROLOGISTS

One thing economists do agree on is that data releases in coming weeks will be even harder than usual to forecast. For instance, the impact of Sandy is likely to skew figures on weekly jobless benefit applications and chain store sales.

"The monthly economic data will become more volatile - October retail sales, vehicle sales, and industrial production will be hurt, but they will bounce back in November and December," Zandi said.

"Restaurants will be hurt, but grocery stores will benefit; general merchandise stores will lose business, but online retailing should get a boost, he added. "Of course, if the storm knocks out major infrastructure like refineries, cell towers, trains, sea and airports, then the economic damage will be more severe and difficult to recover from."

The hurricane has the potential to cause some of the largest losses the global insurance industry has faced this year, but nothing that would strain insurers financially aside from hurting earnings this quarter, according to analysts.

Sandy may also add to the financial headaches for already cash-strapped local governments which will probably have to spend millions of dollars to protect citizens and fix damage from high winds and floods.

But over the long run, they are likely to be able to cope with the extra burden which will be offset by federal aid and rainy-day funds, analysts said.

"Sometimes there are liquidity issues in the beginning but generally, these things have no long-term effects on finances," said Amy Laskey, managing director at Fitch Ratings. "Sometimes the added spending is a positive for local economies." (Additional reporting by Phil Wahba, Ben Berkowitz, Michael Conner and Hilary Russ; Editing By William Schomberg and Sandra Maler)

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