Shoppers browse at a clothing store advertising a store-closing sale in the Dotonbori shopping and amusement district in Osaka, western Japan. Japan's economy returned to growth in the second quarter, pulling out of its longest recession since World War Two, but analysts warned of a rocky road ahead as the nascent recovery was based on short-term stimulus efforts around the world.ISSEI KATO
Japan reported Monday that it has returned to economic growth, joining France and Germany in declaring that the recession is over in their countries. The economies of the other members of the Group of Seven industrialized nations were still contracting in the second quarter of this year.
There is some cause for optimism in the second-quarter gross domestic product data, "but not much," London-based Capital Economics Ltd. said in a research note.
"Three of the six G7 economies which have published their second-quarter data are now expanding again. But while the worst is clearly over, the upswing is likely to be fragile."
In spite of the positive economic news out of Japan, world stock markets plunged Monday as investors focused on last week's reports out of the United States that consumer confidence remains weak and retail sales are down.
Here is a look at which G7 economies are growing, which are emerging from the recession and which are still mired:
Out of recession
Japan: GDP rises on higher exports to China
Bolstered by strong exports to China and government stimulus programs, Japan's economy returned to growth in the second quarter, with the gross domestic product up by 0.9 per cent, Japan said Monday. This is an improvement over the first-quarter contraction of 3.1 per cent, but there are doubts the rebound is sustainable.
"Today's data was driven by stimulus steps in Japan and overseas, so Japan's economy is still far from self-sustaining growth," said Kyohei Morita, chief Japan economist at Barclays Capital.
"Even in Japan, which recorded the strongest quarterly growth in the second quarter, output is still a long way below the previous peak. The recession may be over in the sense that the economy is growing but it will still take many quarters of above-trend growth to recoup the activity lost over the last year or two (with deflationary pressures building in the meantime)," Julian Jessop of Capital Economics wrote.
Germany: Cash for clunkers contributes to recovery
Germany reported on Thursday that economy grew by 0.3 per cent in the second quarter, after four quarters of contraction. While economists were warning against early celebration, this marked a sharp improvement from Germany's contraction of 3.5 per cent in the first quarter. German economists say the cash-for-clunkers subsidy, which enticed consumers to trade in their old-gas guzzlers for new, fuel-efficient models, stimulated demand for new car sales.
"The earlier slump in German exports is starting to ease," Jennifer McKeown of Capital Economics noted. However, global trade activity is still well below pre-recession levels.
France: A return to growth, and bragging rights
France also weighed in on Thursday with a report that its second-quarter gross domestic product had increased by 0.3 per cent. This also came on the heels of four quarters of contraction and marked an improvement in the first-quarter's GDP decline of 1.3 per cent.
France's Finance Minister Christine Lagarde said the government-backed stimulus plan for the auto industry helped her country weather the economic storm and return to growth.
"France is distinguishing itself clearly from its neighbours," she said in an interview, adding that she expected the economy to demonstrate "a complete exit from the crisis" in mid-2010.
In recovery
Canada: growth expected to resume in the third quarter
Bank of Canada Governor Mark Carney said on July 23 that the recession is over in Canada, with growth expected to resume in the third quarter.
"We are on track for the recovery both in Canada and globally," Mr. Carney said at a news conference. "But it's early days. It's a long road."
Canada will report its second-quarter GDP numbers later this month.
The Canadian economy contracted by 5.4 per cent annualized in the first quarter.
Still in recession
United Kingdom: the downturn lingers
Britain is still mired in the recession - the economy contracted by 0.8 per cent in the second quarter. Mervyn King, governor of the Bank of England, said while there are some encouraging signs, the recovery will be "slow and protracted."
Still, the second quarter performance marked an improvement over the first-quarter contraction of 2.4 per cent, noted the Bank of England which now predicts that, for Britain, the recession will likely end next year.
United States: recession 'levelling out'
Although government and Federal Reserve Board officials are sounding more hopeful, the U.S. economy isn't out of the woods yet.
Concluding a two-day meeting in Washington, the Fed's policy-setting committee said on Aug. 12 that the U.S. recession appears to be "levelling out," an upgrade from its assessment in June, when the Fed said the "pace of economic contraction is slowing."
The economy contracted by 0.3 per cent in the second quarter, compared with the steep 6.1 per cent contraction in the first quarter of this year.
Italy: still lagging
Italy continues to struggle. The country's gross domestic product fell by 0.5 per cent in the second quarter. This was, however, better than the 2.7-per-cent fall reported in the first quarter.
Italy's options for stimulating the economy are constrained by a high level of public debt, the Economist Intelligence Unit said in a recent report.
With files from Reuters and The Canadian Press