Q&A: How will Japan's recession impact Australia?

17 Feb 2009, 1:27 pm   -   Source: SBS - Chiara Pazzano
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Economists warn a slump in Japan's economy in the final three months of last ye means increased the chance that Australia will sink into recession.

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Economists warn a slump in Japan's economy in the final three months of last year has increased the chance that Australia will sink into recession. Japan's GDP shrank at an annualised rate of 12.7 per cent in the December quarter, its worst result since 1974.

Will Australia's economy suffer as a result of Japan's recession?

Japan is the world's second-biggest economy and is by far Australia's largest market, taking 24.5 per cent of Australia's exports in the past six months, compared with China's 14 per cent.

Economists expect Japan's downturn to flow through to Australia's exports.

What sectors will be most affected?

"Japan is Australia's major export partner in terms of minerals, energy, resources and agricultural commodities," Jenny Corbett, Economist at the ANU told SBS.

"So exports of coal, iron ore, aluminium, beef, wool are all areas that will feel the effect of a decline in demand from Japanese industries," executive director of the Australia-Japan Research Centre at the ANU Ms Corbett said.

"Also Australia's service sector with Japan will be affected, particularly the travel sector as Japanese consumers stay at home and the transportation sector, which is closely linked with the transportation of goods".

Will Japanese car manufacturing industries in Australia be affected?

Macquarie Bank senior economist Brian Redican says that's very unlikely.

"It's more likely that Japanese companies will close down operations in Asia, and beef up operations elsewhere, particularly in Australia," he told SBS.

Ms Corbett says it would have to be a pretty prolonged crisis in Japan to get to the stage where they close plants abroad, but it is not unthinkable.

"The main question will be what happens to the demand for those Australian built cars – if it holds up and the plants make reasonable profits they would probably be safe," she told SBS.

"If their demand slows down and they become a drain on the parent companies’ profitability there would be a chance of reduced shifts and layoffs in Australia." "Within Japan apparently some companies are reducing shifts and getting workers to job-share to avoid layoffs," she added.

What are the top Australian imports from Japan?

Australia's main imports are motor-vehicles, and other kinds of goods vehicles, civil engineering equipments, machine tools and refined petroleum.

"It's likey that there will be an easing of the Japanese yen, so the prices of these goods might actually come down in Australia," Ms Corbett says.

"Japanese products that are manufactured in other Asian countries may not be affected, but if Japanese companies start to scale down their activities aborad, then there might be a knock-on effect where such products become less easily available," Ms Corbett said.

Will Japanese investments in the Australian stock market radically fall?

Macquarie Bank's Mr Redican says he doesn't expect the Australian stock market to be too badly affected, but he thinks the crisis will reinforce Japanese appetite for safe investment.

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