In China, unemployment is the challenge, social unrest the big worry.
In Japan, it seems exports are falling off the edge of a cliff. News that Toyota is now forecasting its first annual loss since the 1930s sums up the whole thing pretty well.
The real danger, however, is that the world retreats behind protectionism. That will surely be the single biggest threat in 2009.
According to this morning’s FT, the Chinese government is making tackling unemployment its number one priority.
Apparently 10 million migrant workers have lost their jobs, and almost half of that number have returned home.
Meanwhile, it is thought 1.5 million Chinese graduates are looking for work, and their number could swell next year as the next batch of graduates finish their degrees.
China’s problem is that it needs to grow, and it needs to grow rapidly just to stave off unemployment. That may seem bizarre, but as productivity rises, economic growth must rise too. The sum is simple. Say labour becomes 10 per cent more productive. Then output must grow by 10 per cent too, just for the jobs stats to stay still. Economists are now predicting growth in China will slow, perhaps to as low as 6 per cent. That is China’s challenge.
Mind you, despite the problems at China and the other BRIC nations, the ITEM Club from Ernst and Young reckons China is now just ten years away from being the world’s richest nation. The credit crunch has hit the US so hard that it now is forecasting the time when China’s GDP at purchasing power parity will be greater than the US, and this is coming eleven years sooner than it previously estimated.
Meanwhile, in Japan, exports fell by the equivalent of 27 per cent a year in November. Exports to Asia saw their biggest fall since 1986.
The Japanese trade account has now been in deficit for two months in a row.
As for the car maker in front, well, even Toyota is wilting. It has now forecast its first annual loss since the year of the company’s formation, 71 years ago.
The soaring yen, and falling global demand, means the company now expects to sell 4 per cent fewer vehicles than it previously said.
Japan has been in the dog-mire now for getting on for two decades.
In a way, the Japanese crisis which began at the end of the 1980s has affected us more than is commonly realized.
If the real underlying problem behind the credit crisis has been global imbalances, then the Japanese lost decade or two were an important part of that mix. The world’s second largest economy was selling to the rest of the world, but not buying. It was the same, too, with the world’s third largest economy, Germany.
Now the world needs Japanese consumers to start spending. But they haven’t done this for twenty years, so who is to say they will start now?
What the global economy requires is a global fiscal and monetary push. It especially needs to see this in the world’s big trade surplus countries. The danger is that the push is coming from the countries already in deficit. Or in other words, it is back to front.
There is real danger lurking, though, and if this is realized, things could get a whole lot worse.
The spectra of protectionism is lurking. What the world now needs is to see readjustment, as exporters start importing more.
Instead, we see the call for protectionism grow. From the US, where the cheap value of the yuan is held up as the cause of all ills, and moves to save its indigenous car industry; to France, as it tries to hide behind its new Maginot business line; and to China, as it attempts to shore up the job market.
What the global economy needs now, more than anything else, is a new, and this time successful, round of trade talks. This has to be the big priority for 2009.
