Global contractions are very rare. However, it’s increasingly clear we are going to have one. Consumer spending continues to weaken worldwide, and as goes consumer spending, so goes exports from the goods producing nations, especially those in Asia.

Exports plunge in China, Japan, and South Korea. Let’s start off with look at China: Chinese Manufacturing Shrinks After Exports Collapse

China’s manufacturing contracted for a sixth month in January as the global recession sent growth sliding in Asia’s export-driven economies.

China is considering extra measures to boost growth, Wen said in an interview with the Financial Times, published today. While declining to explicitly rule out a devaluation of the yuan, he said that the government intended to keep the currency stable at a balanced and reasonable level.

Aluminum Corp. of China Ltd., the nation’s biggest producer of the metal, has cut capacity because of waning demand and China International Marine Containers Co., the world’s largest maker of boxes for freight, said profit has tumbled because of the global crisis.

Competitive currency devaluations are now underway. I smell beggar thy neighbor fireworks. The US wants a stronger Renminbi, China wants a weaker one. Smoot Hawley II may be brewing. Passing a big import tariff would be a huge mistake, but sabre rattling under Obama has started already.

Record Annual Loss At Hitachi

Demand for industrial electronics is weakening and Hitachi Shares Fall on Outlook for Record Annual Loss.

Hitachi Ltd. fell to the lowest in more than 28 years in Tokyo trading after the company forecast a record 700 billion yen ($7.8 billion) loss in the year ending March 31 amid the global recession.

Hitachi, which made the announcement after the close of trading on Jan. 30, joins NEC Corp. and Fujitsu Ltd. in forecasting full-year losses as the recession curbs spending on consumer and industrial electronics. Hitachi blamed slumping demand, losses from affiliates, taxes, writedowns of equipment and the stronger yen for the projected loss.

“This marks a heavier deterioration than called for in our forecast, which was near the bottom of the projected range,” Hitoshi Shin, a Tokyo-based analyst at UBS AG, wrote in a Jan. 30 report after the announcement. Shin has a “neutral” rating on the stock.

Japanese Companies Cry For Yen Intervention

Currency intervention never works. It has been proven time and time again. Nonetheless, Japan Companies ‘Crying Out’ for Action on Yen

Japanese companies are “crying out” for the government to sell the yen, whose strength is deepening the worst recession since 1945, an official at the nation’s largest business lobby said.

“The yen is the most critical problem for exporters,” Masakazu Kubota, a managing director at Keidanren, said in an interview in Tokyo on Jan. 30. “Whether the government does it alone or in cooperation with others, they should do something about the yen,” he said. “Industry is crying out for it.”

Japan’s currency is trading near a 13-year high against the dollar, cutting the value of overseas sales at a time when exports are collapsing. Companies from Hitachi Ltd. to NEC Corp. are forecasting losses and firing workers, worsening a downturn the central bank forecasts will be the sharpest in the postwar era.

Exports fell an unprecedented 35 percent in December from a year earlier, prompting companies to cut production at a record pace, reports showed last month.

Manufacturers are campaigning for the government to step into the foreign-exchange market, which it hasn’t done for almost five years. The Finance Ministry sold 14.8 trillion yen ($165 billion) in the first three months of 2004, when the currency traded around 103 per dollar.

“I want the government to call for intervention with other nations” if the yen’s appreciation continues, Fujio Mitarai, chairman of Keidanren, said on Jan. 13. Honda Motor Co. President Takeo Fukui also asked for action in December.

Australia Manufacturing Shrinks 8th Straight Month

It now seems certain that Australia will follow the US and Japan into recession. Evidence is easy to find. Australia’s January Manufacturing Index Shrinks for Eight Month

Australian manufacturing contracted for an eighth month in January as companies received fewer orders and fired workers.

The performance of manufacturing index rose 2.9 points to 36.6 from December, the Australian Industry Group and PricewaterhouseCoopers said in a report released in Canberra today. A reading below 50 signals manufacturing is shrinking.

Today’s report adds to signs Australia’s economy may follow the U.S., Europe and Japan into a recession, after expanding in the third quarter at the weakest pace in eight years. Central bank Governor Glenn Stevens will cut the benchmark interest rate tomorrow to the lowest level since the 1960s, economists forecast.

“Ongoing falls in new orders in particular highlight the challenging conditions manufacturers are facing in the early months” of this year, said Heather Ridout, chief executive officer of the Australian Industry Group.

Coupling continues with a vengeance. How so many some could have thought otherwise is quite amazing.

South Korea’s Exports Plunge By Record Amount

South Korea’s January Exports Decline by Record 32.8%

South Korea’s exports tumbled by a record 32.8 percent in January, foreshadowing a deepening slump in Asia’s export-driven economies.

Shipments fell by the most since figures were first compiled in 1957, and at almost twice the pace of December’s 17.9 percent decline, the Ministry of Knowledge Economy said in Gwacheon today. The trade report is among the region’s first economic releases for January.

“An outright recession is inevitable,” said Kwon Young Sun, an economist at Nomura International Ltd. in Hong Kong. “This is an early indicator for the region, and the drop suggests exports in Asia won’t be good.”

South Korea’s economy shrank 5.6 percent last quarter from the previous three months, the biggest drop since 1998. Exports are equivalent to 50 percent of gross domestic product.

“Things are getting worse as the global recession spills over to China and other emerging economies,” said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul.

Exports to China, the nation’s biggest overseas market, tumbled 32.2 percent during the first 20 days of January, today’s report showed. Shipments to the U.S. declined 21.5 percent, exports to the Europe Union plunged 46.9 percent and sales to Latin America dropped 36 percent. Exports to the Middle East fell 7.5 percent.

Email From Korean Reader “Spiral Naseon”

Dear Mish,

Many thanks to you for maintaining a wonderful economic analysis blog. I’ve been following your blog as early as year 2007 and started reading books/websites that you mentioned. Being a Korean, I started introducing your blog and my own explanations to our web blog and internet economy forums, hoping to educate people what would come to them in near future (of course, advertising deflation, recoupling of global economy).

After years of consistently warning of debt deflation and government’s mal-investments, I became a well-known person and ended up writing a book about economic cycles (credit cycles) and inflation/deflation. This book will be published in Feb 9th. Although it is written in Korean, I wish to send you this book since I mentioned your name in dedication/acknowledgment section.


Spiral Naseon

‘Spiral Naseon’ is a pseudonym for the name he posts on at the economic forum, the very same one where Minerva worked before he got arrested. See the LA Times story Case of Internet economic pundit Minerva roils South Korea.

Spiral Naseon translated means “Debt Spiral“.

Naseon assures me he posts from an IP address outside of South Korea in a manner that cannot be traced. He goes on to say “There are many copy cats of Minerva. No one knows whether the person arrested is a real Minerva or not. At least, the one I know is not arrested yet.

Good luck to you and your book Spiral. I look forward to receiving a copy.

Mike “Mish” Shedlock
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