JEI's Spin on the News

It's Official: The Recovery Is Over

Tuesday, June 23, 1998

An advisory committee to the Economic Planning Agency decided June 20 that Japan is in a recession, taking absolutely no one by surprise given the obvious weakness of the economy in recent months. The committee dated the recession as starting last March, implying that the economy was in an expansion phase from November 1993 to March 1997, at three years five months a rather short period of expansion.

The committee took a number of criteria, including production and consumer spending, into consideration in coming to its judgment. The criterion informally used in the United States — two consecutive quarters of decline in gross domestic product — appeared irrelevant in its determination inasmuch as the March cutoff date came in the final month of a period of rapid growth prior to the introduction of the consumption tax. Reports appearing in the American media that Japan's recession became official with the release of GDP data in mid-June are are incorrect. By that standard, Japan's recession would not have begun until early 1998.

Although Japanese expansions and recessions typically carry colorful names dreamed up by journalists, the most recent recession, one of the wimpiest on record in terms of duration and vitality, remains nameless. Of course, the period that followed has been far worse. No sooner had a consensus started to emerge that a recovery was probably underway than economic indicators started pointing south in 1997. In fact, Japanese households could be excused for not knowing what they had until it was gone. Moreover, subsequent countercyclical public works spending included paving over river beds and other bits of paradise. Perhaps the 1993-97 period could be called the Joni Mitchell recovery.

"JEI's Spin on the News" are the opinions of one of more members of JEI's staff and do not necessarily represent the views of the organization.

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