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Overview of countries effected by credit, liquidity and inflation; recession conditions – Japan, Spain, Iceland, Australia – (update 7). The world is slipping into a recession.

Posted by Adrian on August 7, 2008

Global recession is upon us.

America and Europe, with Spain, UK and Ireland as the leading European recession indicators followed by Germany, France.

Asia’s recession economies are currently Singapore and Japan.

Japan is interesting, there has been lagging growth in literally every sector. Just about every index that Japan has is showing a slow down and a rapid one. With recent machine orders stats showing a slight decline (thanks to Chinese demand). Keep in mind domestic demand in Japan will dip dramatically as will slowing external growth. The other point to roll Japan into a protracted global recession, is companies will find it almost impossible to refinance debt. We have seen this with Europe, more so with Spain’s Martinsa Fadesa (MFAD.MC: Quote) going bankrupt and other companies such as French Vodka company Sobieski vodka filing for bankrupt protection. Japan will be no different, once the corporate defaults kick in – the corporate/consumer recession in Japan will be brutal. So at this point there is no doubt Japan is in a recession, or at least one that is seen currently in statistical terms. The hedge is still Chinese demand, but China may slow down significantly. Japan and the rest of Asia, more so China will need to pray to the gods that oil will fall in price.

for reference Japan orders, a -2.5% decline in June 2008:

[JP Machinery orders Jun May Apr Mar Feb 3m avg Con]

Core orders m/m -2.6 A 10.4 5.5 -8.3 -12.3 4.4 -9.6

Core orders y/y 9.7 A 5.1 0.5 -6.2 2.4 5.1

The current falling oil price, now under the 120 support at 118, needs to fall well under $100.00 a barrel. For this price to occur, China really needs to slump economically. This may not happen, equity, housing and other financial markets may correct significantly; but the demand for commodities (more particularly oil) may continue onward.

For Japan to have a ‘mild’ recession – or escape a protracted severe recession, will all depend on the oil price and the credit markets. Oil will not significantly correct anytime soon, as for the credit markets – it’s a horror show.


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