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APEC finance chiefs see 'downside risks' to global economy
by Staff Writers
Beijing (AFP) Oct 22, 2014

Shaky Japanese economy hit by growing trade deficit
Tokyo (AFP) Oct 22, 2014 - Japan's shaky economy was dealt another blow Wednesday, as official data showed a widening September trade deficit that puts the world's number-three economy on track to log a record annual shortfall.

The worse-than-expected deficit of 958.3 billion yen ($8.96 billion) adds to a string of weak figures and follows a sharp economic contraction in the second quarter after an April sales tax rise slammed the brakes on growth -- fuelling fears of a recession.

The latest numbers translated into a trade deficit of 10.47 trillion yen for the first nine months of the year, a 35 percent leap from a year ago.

Earlier this month, the International Monetary Fund nearly halved its 2014 growth projections for Japan -- to 0.9 percent from 1.6 percent -- underscoring the damage that the tax increase inflicted on the economy.

And on Tuesday the Japanese government downgraded its outlook for the economy for the second month in a row, raising more questions about whether Tokyo will raise the levy again next year to 10 percent from 8 percent.

"The government and Bank of Japan (BoJ) have assumed that the domestic economy may be weak due to the consumption tax rise, but that it would be offset by foreign demand," said Takeshi Minami, an economist at Norinchukin Research Institute.

"That scenario may be collapsing. China is slowing down and there are risks of Europe entering recession."

However, improving shipments to Asia -- which rose 8.1 percent in September -- could help smooth out Japan's trade picture, according to SMBC Nikko Securities.

"Asian production has been slack since 2011 and was part of the reason that Japanese exports stalled," it said in a research report.

"But it is increasing gradually now and may lead to a recovery in Japanese exports."

- Tax rise uncertain -

The gloomy figures will heap more pressure on the government of Prime Minister Shinzo Abe and his economic growth plan dubbed "Abenomics".

The plan stalled when Tokyo raised the sales tax on April 1 -- for the first time in 17 years -- to help pay down one of the world's biggest public debt burdens.

Abe's economic plan helped sharply weaken the yen as the central bank launched massive monetary easing stimulus.

But the currency's drop has not translated into a strong pick-up in exports as Japanese companies shift production to lower-cost venues abroad.

Japan's September trade deficit of 958.3 billion yen was a record for the month, up from 943.2 billion yen a year earlier, and was much worse than a market median forecast of a 768-billion-yen deficit.

The shortfall was up 1.6 percent year-on-year.

The finance ministry said exports rose 6.9 percent to 6.38 trillion yen helped by higher shipments of cars, steel and ships.

Shipments to China rose 8.8 percent, while exports to North America rose 4.7 percent and were nearly flat to the European Union, inching up 0.7 percent.

Imports climbed 6.2 percent to 7.34 trillion yen, boosted largely by purchases of liquefied natural gas and telecommunications equipment, which was partly tied to the launch of the newest iPhone in Japan last month.

Natural gas buying has remained high as Japan tried to plug a yawning energy gap after the 2011 Fukushima crisis forced the shutdown of nuclear reactors, which once supplied more than one-quarter of the nation's power.

Japan's economy contracted 1.8 percent on-quarter in the three months to June -- or 7.1 percent on an annualised basis -- its steepest quarterly drop since the quake-tsunami disaster, raising concerns about another downturn in the July-September period.

The global economy is beset by increasing "downside risks", Asia-Pacific finance chiefs said Wednesday, a day after growth in China hit a five-year low.

The meeting in Beijing of finance ministers from the Asia-Pacific Economic Cooperation (APEC) forum preceded the group's annual summit next month, when Chinese President Xi Jinping will host leaders from the US, Russia and Japan amongst others.

"As the global economy still faces persistent weakness in demand, growth is uneven and remains below the pace necessary to generate needed jobs, and downside risks have risen," the ministers said in a joint statement.

"The APEC region, as the engine of the world economy, should lead the global recovery towards strong, sustainable and balanced growth."

The statement came after China, the world's second-largest economy, said Tuesday that gross domestic product expanded 7.3 percent in the third quarter, its slowest pace since the depths of the 2008-2009 global financial crisis.

APEC, established in 1989, groups 21 economies spanning Asia, Oceania and North and South America. It includes the United States, China, Japan and Russia, emerging economies such as Mexico and Indonesia and small nations such as Brunei and Papua New Guinea.

Chinese Vice Premier Zhang Gaoli opened the meeting by highlighting challenges the region faced, but stressed the importance of APEC's economies which he said account for 40 percent of the world's population, 70 percent of the global economy and 46 percent of world trade.

The gathering was attended by Chinese finance minister Lou Jiwei, Japan's Taro Aso and others, though US Treasury Secretary Jacob Lew skipped the event, instead sending Deputy Secretary Sarah Bloom Raskin.

World Bank managing director Sri Mulyani Indrawati warned the meeting of global risks including weakening commodity prices, the Ebola outbreak in West Africa and political instability characterised by the rise of the Islamic State group and ongoing conflict in Ukraine.

"2014 could turn out to be a disappointing year for the global economy," she said.

China's Lou played down his country's slowing growth, telling a post-meeting press conference that "singlehandedly" focusing on GDP expansion is insufficient.

"We should pay great attention to the quality of growth. Indeed, the quality is improving," he said.

- 'A new world' -

Alan Bollard, APEC executive director and former head of New Zealand's central bank, said both near- and medium-range challenges were on APEC's agenda.

"The general theme on the short-term monitoring side is very much how normalisation of monetary policy in the US goes and what positive or negative spillovers there could be," he told AFP on the meeting's sidelines, referring to the US Federal Reserve winding down a vast bond-buying programme put in place to help fight the global financial crisis.

Longer-term structural issues were also important, he added.

"We've relied on trade-driven growth in the past for APEC and it's not going to be like that for the future," he said.

Free trade remains a key APEC goal, though rival groupings championed by the US and China have split members.

Political tensions within the organisation include maritime territorial disputes between China, the Philippines and Vietnam as well as between China and Japan, whose leaders have not yet held direct talks.

Japan's Aso, who is also deputy prime minister, told his country's media in Beijing that during a brief chat with Vice-Premier Zhang he urged China to allow a summit between Xi and Japanese Prime Minister Shinzo Abe next month at APEC.

APEC also includes Hong Kong, a semi-autonomous region of China, and self-governing Taiwan which is claimed by Beijing.

The finance meeting was originally slated to be held in Hong Kong but the venue was switched early this year, reportedly over Chinese concerns about the prospect of pro-democracy demonstrations in the former British colony.

Since late last month Hong Kong has been the scene of major street protests by groups demanding fully democratic elections for the city's chief executive in 2017.

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