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Japan

Japan

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Published by: Deloitte University Press on Mar 01, 2013
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03/01/2013

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Asia PacicEconomicOutlook
 February 2013
 AustraliaChinaIndonesiaJapan
 
 Asia Pacic Economic Outlook—February 2013 2
The Australian economy is estimated to haveachieved its best perormance since 2007 aterenjoying a 3.5 percent expansion in 2012.
Downside risks to growth appear to have diminished, butthe economy is not out o the woods yet; a worseningdebt crisis in Europe could have signicant ramicationsor Australia. While the country’s direct export exposureto Europe is limited, Australia depends on credit romEuropean banks, which could dry up in the event o a crisis,to meet its nancing requirements. On the other hand,the Chinese economy seems to have turned a corner,and the demand or resources rom China and otherparts o Asia will uel growth in Australia’s mining sector.Moreover, Japan’s new government has embarked uponan aggressive policy agenda, and the US economy has,so ar, avoided a severe scal contraction. These actorsbode well or Australia’s growth prospects. Australia’sGDP is expected to expand by 3 percent in 2013 onthe back o higher capital investments, strong outputgrowth in the mining sector, and increased exports.Australia’s housing sector is staging a recovery, but itmay be too early to suggest a turnaround. An uptick indemand has pushed average house prices in Australia’scapital cities up by 1.6 percent in Q4 2012. The housingsector seems to have benetted rom the central bank’srate cuts, which have made housing more aordable andadded to the condence o homebuyers. Furthermore,ewer Australians are now deaulting on their mortgagepayments as a result o lower interest rates and slowergrowth in house prices. However, housing approvaldata showed that the number o approved dwellingsell 4.4 percent in December ater rising 3.4 percent inthe previous month. With housing prices moving higher,investments in this sector will likely increase in the comingmonths and prices are expected to inch up gradually.Meanwhile, contrary to expectations, retail sales ell by 0.2percent in December. Retail sales have been weak sinceOctober 2012, but the December reading is particularlydisconcerting against the backdrop o a mild recovery inthe housing sector. The holiday season and the centralbank’s rate cut did not translate into higher consumerspending. While the weakness in the overall level o retailsales is disappointing, sectors such as ootwear, clothing,and electronics posted small gains. Furthermore, newvehicle sales made a strong start in 2013, up 11.3 percentin January over the previous year despite a sharp drop in
Australia
 
 Asia Pacic Economic Outlook—February 2013 3
purchases by the ederal and state governments. Eventhough some indicators suggest that private consumptionspending is picking up, pre-crisis levels o consumptionare unlikely in the near term. Australian consumers areheavily indebted and have increased their saving rate inthe atermath o the nancial crisis. Household savingsaveraged 10.3 percent on a seasonally adjusted basisbetween January and September 2012 compared toan average o 3.3 percent in the 2004–2008 period.Moreover, credit availability is relatively constraineddespite the central bank’s periodic rate cuts.The Reserve Bank o Australia (RBA) cut the cash rate by1.75 percent between November 2011 and December2012. In its monetary policy meeting in February 2012,the RBA kept the cash rate unchanged at 3 percent.Improving global outlook and an uptick in the housingsector support the central bank’s stance, and the ullimpact o monetary easing undertaken in 2012 is yetto play out. Meanwhile, the Consumer Price Index (CPI)rose 0.2 percent in Q4 2012, compared with a rise o1.4 percent in the third quarter. Overall, the CPI rose 2.2percent in 2012 and is within the RBA’s target level. Aslight increase in unemployment, limited upward pressureon labor costs, and modest consumer demand are likely tokeep a lid on infation in the coming months. However, igrowth alters, the RBA has the fexibility to ease policy.
Australias housing sector is staging a recovery,but it may be too early to suggest aturnaround. An uptick in demand has pushedaverage house prices in Australia’s capital citiesup by 1.6 percent in Q4 2012.

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