There were tiny signs of life in two of the world’s largest economies, anomalies in a period when the global economy may be falling into a double dip recession.

Japan announced that its jobless rate fell to 5.2% in July, down from 5.3% in June. The Asian nation also said that its consumer price index fell 1.1%, a potential sign of prolonged deflation.

The UK revised its second quarter GDP improvement to 1.2% from earlier estimates of 1.1%.

The two nations made the announcement about a week after Germany said its GDP growth was better than expected.

The level of optimism about the announcements needs to be put in the context of global economic issues. US second quarter growth is likely to be revised down from the original estimate of 2.4% due to trade balances and inventory issues. The number could drop as low as 1%. China’s economy, while still growing at 10% or better, may have GDP improvement drop to 9%, according to some economists who see slowing in manufacturing. At the same time, core inflation is up 7% and there are reports that the costs of food and real estate are rising much faster, although the central government has not admitted to that.

While emerging economies in India and much of South America are still expanding rapidly, experts have to question how long that can continue if the world’s largest nations cease to be major importers because of lack of improved economic activity. The most troubling figures about GDP come from nations in the EU other than the “big two” economies for Germany and France. The sovereign debt ratings of these smaller countries are not routinely cut by credit rating agencies. A second recession in America would hurt their export prospects and the level of tourism activity that is essential to most of their economic prospects.

There is more trouble still among the larger economies. The Japanese government will announce measures to drive down the high valuation of the yenm, which is currently harming the prospects of its largest companies. China has begun to reign in bank lending because of fear of bubbles in real estate and equity prices. Austerity budgets and higher taxes could wreck whatever improvement there might be in GDP in Japan, and several European nations including the UK. In the US, a slowing economy was not aided much by the Administration’s nearly $800 billion stimulus package. Politicians appear afraid to pour more money into the economy which would have the effect of increasing the deficit.

But, it was a good day –one good day —  in Japan and the UK.

Douglas A. McIntyre

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