Weak Japanese economic indicators but economists ambivalent about global economy

Japan's economy remains weak.

Japanese household spending fell 3.7 percent in February from a year earlier, the fifth decline in six months, the Ministry of Internal Affairs and Communications reported yesterday. Compared with the previous month, overall household spending fell a seasonally-adjusted 1.8 percent, also the fifth decline in six months.

Yesterday, the Conference Board reported that its leading index for Japan was unchanged in February. Today, the Cabinet Office reported that its index of leading economic indicators fell to 20 percent in February from 54.5 percent in January, its lowest reading since November 2001.

Other recent indicators have been mixed, as mentioned in recent posts. As a result, in general, economists remain ambivalent over the outlook for the global economy. For example, this week's issue of The Edge Singapore carried two opposing views on the outlook for the global economy.

Credit Suisse First Boston economist Sailesh Jha thinks that global gross domestic product growth will accelerate to 4.3-4.5 percent year-on-year in the second half of 2005 from 4.2 percent in the first half on the back of strong domestic demand conditions in China and the US. This should help the Singapore economy to re-accelerate in the second half of the year as well.

Manu Bhaskaran of Centennial Group, however, thinks that the first quarter may "turn out to be uninspiring" for Asian economies, and "further deceleration could occur in coming months". Citing a wide range of factors — including recent poor economic indicators, bad weather and avian flu — he thinks that "risks to growth are rising and only China and South Korea are likely to be able to avoid the worst of the regional slowdown".

There are contradictory indications from Europe too. Even as the European Commission cuts its eurozone growth forecast for this year to just 1.6 percent in the wake of rising oil prices, a strong euro and weak European economic data, a Morgan Stanley survey of its European equity and credit analysts found that an anticipated slowdown in the second quarter is likely to be temporary, with capital spending plans by European companies seen increasing (although, as the report points out, the spending may not necessarily be done in Europe itself).

As the market saying goes: Bull markets climb a wall of worry. If that is true, these uncertainties may not mean very much to investors.

But I am not so sure the current uncertainty is so benign.