Friday, January 23, 2009

Two policy reports; two different stories

Today, the Bank of Japan (BoJ) released its Monthly Report of Recent Economic and Financial Developments. And on the other side of the globe, the Bank of Canada (BoC) released its quarterly Monetary Policy Report Update. The reports, read side by side, reveal that Japan's outlook is far worse than is Canada's.

Here is my take on the two reports:


The BoJ report is nothing short of dismal. Economic conditions have deteriorated “significantly,” where exports “decreased substantially”, corporate profits “continue to deteriorate”, investment “declined substantially”, and consumption has “weakened.” And for an economy that relies so heavily on exports, almost 19% of GDP (the U.S. export market is almost 14% of GDP), a currency that has reached its 14-year high on a trade-weighted basis is not good news.

The BoC states that Canada is in a recession amid a 1.3% growth rate in the third quarter; and furthermore, that exports are “down sharply”, and domestic demand is “shrinking”. However, the BoC was rather optimistic about global coordinated fiscal policy, citing the risk of its effectiveness in stimulating global growth as “roughly balanced”. Here is their global outlook:

Chart source: The Bank of Canada's Monetary Policy Report Update. The numbers in parentheses are the BoC's projections from the October 2008 Monetary Policy Report.

Overall, the BoC is rather optimistic, with global growth returning to 3.7% in 2010, as most countries move toward potential growth. Of course, this hinges on the success of "bold and concerted policy actions", especially on the part of the U.S.

Rebecca Wilder

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