The rate of the fall in GDP is likely to reduce appreciably, moving from 16% Q/Q annualised in Q1 to -20% in Q2. The leading indicators and industrial production (+5.9%) recorded good rises over the month. Growth was sustained by external trades, which drew the balance of trade into positive territory and by consumption, which benefited from public funding, particularly that linked to the purchase of a new car.

However, investment in construction continued to drop, with spending from the public sector only partially compensating for the slump in the private sector. The excess of stocks remained considerable and is likely to penalise growth over several quarters. Finally and above all, the state of the financial situation faced by businesses prevents there being any outlook for sustainable growth in Japan. Their financial position and their profitability are deteriorating significantly despite the substantial drop in payroll costs. For the first time ever, the whole of the manufacturing sector posted a loss in Q1. The very difficult credit conditions pushed businesses to cut their investments and their payroll costs at an unprecedented rate. In the face of offers of employment that were insufficient by 58% to meet demand in May, the unemployment rate will continue to increase sharply (5.2%) and salaries will drop significantly. Overall, Japan is sinking into deflation: at -1.5% in June in Tokyo, the annual inflation rate is close to its record low of -1.7%, recorded in February 2008.

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