Latest Japanese Numbers Show Global Economy Extremely Weak

By Sasha Cekerevac for Investment Contrarians | Aug 24, 2012

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More evidence surfaced as to the extent of the global economy when Japan reported that its exports plunged, especially those to Europe and China. As if we haven’t seen enough evidence of a double-dip recession that’s coming, this is yet another indicator that the global economy continues to struggle.

The annual decline in export was 8.1%, far larger than what analysts were expecting at 2.9%, according to a report by Reuters. The report also noted that shipments to Europe dropped a massive 25.1%. With Europe already in a double-dip recession, in my opinion, I don’t think it will take much more negative influence to keep the global economy barely struggling to avoid a double-dip recession as well.

These types of drops are not normal, but are rather indicative of a panicked market, similar to the 2009 period during which the global economy took a massive hit. While many have been aware of the double-dip recession in Europe, investors have been hoping that China might rebound and kick-start the global economy. These recent statistics show that China itself is showing signs of economic turmoil.

Japan’s exports to China dropped 11.9%. The shocking part of this number is not that it’s the largest decrease in five months, but that this follows several rates cuts and adjustments to the banking sector in China that were designed to spur growth. This means that the latest initiatives are failing to have an effect. This is certainly a negative for the global economy. If central bank policies are becoming ineffective, the probability of preventing a double-dip recession certainly declines as well.

While the Japanese yen has hurt exports, as the currency has strengthened, I do think that there is more to this latest report than simply a fluctuation in valuations. The global economy is weak, we know that, but these numbers point to the possibility that more countries are facing a double-dip recession. We can’t ignore this fact.

Investing in such an uncertain forecast for the global economy is not easy. While many will look to gold, as that is an obvious solution to the most likely monetary initiatives that the central bankers might enact, the end-game is not that obvious. To prevent a double-dip recession, many people will expect central bankers to print money. That would help certain markets like gold, but would it really help the global economy?

There are trillions of dollars sitting idle already. This is not a monetary problem but a fiscal one. The global economy has large imbalances and needs real, structural reform; simply throwing freshly printed dollars at the problem will not solve it. After all, for every dollar used to stimulate the global economy away from a double-dip recession, a dollar has to be removed at some point. What will happen to the global economy at that point? And if the answer to all of life’s problems was more money printing, why are we in such a troubled global economy? Because that’s all we’ve done for years: avoid the hard decisions that need to be made!

Tags: China, double-dip recession, Europe, Global economy