Recession Deepens, but Government Aid Sparks Hope

Asian markets reacted positively this morning to announcements of further measures to stimulate the world’s largest economies, but investor sentiment was undermined by new data indicating a strengthening recession.

On the Tokyo Stock Exchange, the Nikkei index rose by 0.8 percent today, and a modest increase in stock prices was also recorded on exchanges in New Zealand, Taiwan, and Singapore. On the other hand, in Hong Kong, the Hang Seng index was down about 0.8 percent around 8 a.m., and stock prices fell in China, South Korea, and Australia. The MSCI index of Asia-Pacific stocks, excluding Japan, rose by 0.3 percent this morning, following a jump of 7 percent yesterday, reaching its highest level in a month.

Announcements of new stimulus packages for the world’s largest economies awaken optimism among investors, but they are still concerned about how deep the recession will be in the U.S., eurozone, and Japan. “Among investors, the prevailing opinion is that a depression scenario will be avoided, and the recession will be mitigated. However, we cannot yet say that we are at a turning point,” says Song Seng Wun, an analyst at Singapore’s CIMB Securities. This morning it was announced that Japan’s gross domestic product fell by 1.8 percent year-on-year in the quarter from July to September, rather than the initially reported 0.4 percent.

This indicates a deeper recession than previously thought, especially after the revised data confirmed that the economy recorded a decline of 3.7 percent in the previous quarter, analysts say. “Citizens will have to be very patient while the government tries to improve the economic situation in the coming year,” said Japan’s Finance Minister Kaoru Yosano, following the new GDP data. Local media report that the government is discussing an additional stimulus package worth $216 billion.

The chief advisor at the Chinese central bank told local media that exports could decline in November compared to the same month last year, while industrial production growth could slow to 5 percent. This shows, analysts say, that the effects of the weakening global economy are increasingly felt in China. Given the worsening situation in all parts of the world, analysts at Deutsche Bank estimate that global economic growth in 2009 will barely be above zero.

Analysts also say that, despite government and central bank interventions, not all the damage from the credit crisis in the financial sector has been repaired. This is indicated by the announcement from Australia’s Westpac Banking Corp about the sale of $1.7 billion worth of shares to raise fresh capital and cover losses. “This reminds us that there will be calls for fresh capital to address all the consequences of the financial crisis in the coming year,” says Jamie Spiteri, an analyst at Shaw Stockbrokers.

While the financial sector was under pressure on most Asian exchanges this morning, stock prices of automobile manufacturers rose significantly. Thus, the share price of Japan’s Nissan jumped more than 4.5 percent, and Honda nearly 4 percent. This is thanks to news that the U.S. Congress and the White House are close to an agreement on $15 billion in aid for the local automotive sector. Thanks to the announcements from newly elected U.S. President Barack Obama regarding substantial infrastructure investment, stock prices in the construction and mining sectors rose this morning. The shares of Australian mining company BHP Billiton increased by more than 4 percent. (H)