14 May 2003, 09:08  Japan current account surplus tumbles in March

TOKYO, May 14 - Japanese export growth slowed in March and imports surged as war in Iraq dented consumer confidence and pushed up oil prices, cutting the current account surplus and raising concerns about future economic growth. The surplus, the broadest measure of trade in goods and services, fell 26.6 percent from a year earlier to 1.601 trillion yen ($13.7 billion), the Finance Ministry said on Wednesday. A poll had forecast a drop of 29 percent. Export growth slowed to 0.9 percent in March from 7.7 percent in February, while imports increased 10.0 percent, after a 4.2 percent rise in February. "The figures underscore the trend that exports, which have pulled the economy along, are flagging," said Shuji Shirota, economist at Dresdner Kleinwort Wasserstein. Japan's figures came a day after the United States announced a trade deficit in March of $43.5 billion -- the second-highest on record and a 7.6 percent increase from February, the result of the higher cost of oil and a decline in some key export areas. Japan needs a strong U.S. economy to help its exports, a key driver of economic growth, while the United States needs an improvement in Japan's economy to boost demand for its own goods.
While the latest figures show that this may not be happening, analysts say that given that oil prices have fallen since the end of the Iraq war, the figures do not significantly alter the general slowing trend in the world's two largest economies. "A lot of the widening of the U.S. deficit was due to a widening of oil imports, which means that people were trying to get them in before the Iraq war started," said Peter Morgan, chief economist at HSBC. "I'm not sure that has any great implications. It suggests if anything that it will probably reverse in coming months as people don't need to import as much oil."
Exports have been one of the few bright spots in Japan's economy over the past year, driven by strong demand for cars and machinery in fast-growing neighbour China and other Asian countries. But uncertainty surrounding the run-up to and outbreak of the war in Iraq dented confidence in many of Japan's markets. Car exports to the United States, which were strong last year, have slipped back, while the SARS virus in China is threatening to cool demand there. At the same time Japan had to pay for its oil, all of which it has to import, as prices rose in the run up to the war. As a result, the trade surplus shrank 19.2 percent from a year earlier to 1.136 trillion yen. Japan's chronic deficit in the services account narrowed to 240 billion yen from 305 billion yen as war prompted many Japanese to refrain from travelling abroad. This trend is likely to continue as the SARS virus puts many Japanese off travelling to China and Hong Kong, two of the biggest destinations for Japanese tourists. "This factor may mitigate some of the downward pressure on the current account associated with the stagnation in export growth," said Ryo Hino, an economist at JP Morgan. ($1=116.77 yen)//

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