GS using the R word for japan too
------------------------------------------------------------
Jan. 10 (Bloomberg) -- The risk of a Japanese recession has risen to a ``danger level,'' Tetsufumi Yamakawa, chief Japan economist Goldman Sachs Group said today.
The engine that drove virtually all of Japan's third quarter growth will stall as the U.S. slowdown spills across Asia, cutting demand for Japanese exports, Yamakawa said. Goldman cut its 2008 growth estimate to 1 percent from 1.2 percent and said the central bank may have to forego raising rates this year.
Sluggish spending by consumers has left Japan more dependant on overseas markets, just as cooling U.S. demand threatens to spread to Asia, where Japan sells half its exports. Faltering demand at home and abroad puts the chances of recession at about 50 percent, Yamakawa said in a report to clients today.
``We project weaker-than-expected growth in Japan especially in the first half of 2008 owing to an inevitable, moderate slowdown among emerging economies,'' Yamakawa said.
Economic and Fiscal Policy Minister Hiroko Ota said this week that ``risks to growth are mounting.'' She cited record energy costs that have cut corporate profits, weakened household sentiment, and the collapse in the construction industry as a risk for growth this year.
The worst slump in housing starts in forty years shaved 1 percentage point from Japan's 1.5 percent growth in the third quarter.
``The greatest challenge for the Japanese economy, needless to say, is a recovery in personal consumption, which has remained in an extended slump,'' Goldman's Yamakawa said. ``Innumerable obstacles stand in the way.''
Falling Wages
Falling wages, which have dropped about 10 percent in the last decade, and rising food and energy prices have sent consumer confidence to a near four-year low. Paychecks are unlikely to rise this year as rising oil prices crimp profits.
With domestic consumption flat, the economy is more dependent on foreign demand. Exports contributed almost of Japan's growth in the third quarter, as demand from Asia helped make up for slowing orders from the U.S.
The risk is that demand from Asia will also dry up.
``A U.S. slowdown affects Asia, beginning with China, and via that route it affects Japan,'' Ota said this week. ``The extent to which Japan is hurt depends on the severity of the U.S. slowdown.''
