By Emily Kaiser
WASHINGTON, Aug 16 (Reuters) - Japan could very well become the third major developed country to pull out of this global recession and, as happened in Germany and France, it may be investors rather than policymakers cheering the loudest.
Japan's preliminary look at second-quarter gross domestic
product is due on Monday morning Japan time, Sunday in the
United States (2350 GMT on Aug 16), and is expected to show the
economy grew by 1 percent in the April-to-June period.
That would be the strongest advance in two years, and the first positive reading in five quarters.
Yet the Bank of Japan kept its benchmark interest rate barely above zero last week and cautioned that a recent pickup in demand may fade once government stimulus programs end.
Barclays Capital economist Kyohei Morita thinks Japan's economy will hit a "temporary soft patch" at the start of 2010, a payback from this year's stimulus efforts. While they temporarily helped to lift demand for items such as eco-friendly appliances and fuel-efficient cars, they did not boost household income, which means demand will stay subdued.
"Without an improvement in purchasing power, we have to expect a reactionary decline in consumption in the first half of 2010," he wrote in a note to clients.
It is a similar story in Germany and France where reports last week showed GDP turned positive in the second quarter, sparking stock market rallies around the globe. Yet some government officials warned against getting overly enthusiastic because the economy remained far below pre-crisis levels.
TJ Marta, founder of research firm Marta on the Markets in Scotch Plains, New Jersey, thinks the U.S. economy could also return to growth in the current July-to-September period. But he worries that the recovery is resting almost entirely on government supports, such as the $3 billion "cash for clunkers" program that offers incentives to buy new cars.
"We can get a positive GDP print but that's just the morphine talking. That's 'cash for clunkers' and stimulus coming through," he said. "There is still no underlying U.S. consumer to support this economy."
The concern about sustainable growth helps explain why central bankers don't seem to share the stock market's confidence in the economic recovery. The U.S. Federal Reserve said last week the economy was "leveling out" but stopped well short of declaring an end to the recession.
Fed Chairman Ben Bernanke is scheduled to give a speech on Friday at the central bank's annual economic symposium in Jackson Hole, Wyoming. Judging from the title -- "Reflections on a Year of Crisis" -- the speech will be largely retrospective, but he will probably offer up at least some sense of where he thinks the economy is headed.
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Disappointing reports on U.S. retail sales and consumer confidence last week added to concern that consumption -- which accounts for about 70 percent of the country's economy -- remained quite weak. British retail sales data for July, due on Tuesday, are likely to look lackluster as well.
The message is that consumer spending probably won't be the driving force behind the recovery.
What will be is unclear. President Barack Obama wants the U.S. economy to be more export-driven, something economists have been advocating for many years.
But in the short term, that poses a problem. Domestic demand is weak in most major economies, including Britain, Germany and Japan, which means many countries are also looking to exports to compensate for poor demand at home.
Obama has told the world not to count on the "voracious" U.S. consumer to propel the global economy, yet there is no obvious choice to replace that demand.
Eurostat trade data on Monday will provide some insight into how Europe's exporters are coping with weak U.S. demand. Germany, by far Europe's biggest exporter, got an economic boost from trade last quarter but only because imports fell even faster than exports.
While it is highly unlikely that U.S. consumers will bounce back quickly after losing trillions of dollars in real estate and investment wealth, a pickup in the housing market would certainly go a long way toward repairing household balance sheets and restoring confidence.
A string of reports on the housing sector this week, starting with a survey of home builders on Monday, housing starts on Tuesday, and existing home sales on Friday, will be key for gauging whether the market is on the mend.
Still, a full recovery is probably a long way off. Sal Guatieri, a senior economist with BMO Capital Markets, pointed out that home foreclosures reached new highs in July.
"It goes without saying that until savings, unemployment and foreclosures stop climbing, credit-constrained consumers will retain a bunker mentality," he said.
"While the Great Recession may be history -- thanks to inventory rebuilding, renewed export growth and pulled-forward demand -- a not-so-great recovery is likely the offspring." (Editing by Kenneth Barry)