The world’s second largest economy, Japan, and Europe’s largest, Germany, all of a sudden have a lot in common.
Their most striking resemblance in recent weeks is the breathtaking speed of economic decline, with output ransacked by a collapse in world demand for high-quality manufactured goods and an overvalued currency.
The fundamental problem is simple and doesn’t take an economist’s model to explain. At this stage of the financial crisis, who wants to replace a fully-functional Audi they bought a few years ago? What’s wrong with the 2007-vintage Sony PlayStation connected to the two-year-old Bravia or Grundig flat-screen TV? And who in their right mind would want to import the stuff in bulk when the euro and the yen are so expensive?
It’s very simple, but somehow analysts remain nearly universally stunned.
News that German industrial production plunged by 4.6 percent in December, nearly double the Reuters consensus and the steepest decline since 1989, triggered much handwringing. “Really horrific”, one analyst gasped. “Pretty horrible”, another muttered. “Devastating”, another shrieked.
Those were more or less the same words used to describe the near-10 percent collapse in Japanese industrial production, driven by the same trouble from those same frugal global consumers. Compounded, of course, by even more thrifty domestic consumers, as in Germany.