Japan's rebound latest sign of global turnaround

Like telltales on a sailboat, signs of growth around the world indicate that the global economic winds are shifting and becoming more favorable.

Japan is the latest to signal change. On Monday, it reported (.pdf) its second-quarter gross domestic product (GDP) grew at an inflation-adjusted rate of 0.9 percent after four consecutive quarters of contraction. France, Germany, and Hong Kong reported last week that their economies also grew in the second quarter after bouts of recession, while China reported an acceleration of its growth in the second quarter.

With the US widely expected to return to growth in the third quarter, most of the world's major economies appear aligned to lead the global economy into more favorable waters in the coming months.

So why are investors so jittery?

On Monday, as Japan announced its turnaround, Tokyo's Nikkei index dropped 3.1 percent. Shanghai's stock market plunged nearly 6 percent while Europe's major market indexes were also down and Wall Street opened sharply lower.

The underlying reason: the markets had already factored in the widely anticipated growth in Japan and, more generally, a resumption in global growth. What investors are now worried about is the strength of that recovery.

A big question mark is the robustness of America's rebound after Friday's unexpectedly negative consumer-sentiment report. Another unknown: whether Japan's economy will continue growing once its government stimulus efforts run out. While its exports rebounded, domestic consumer spending remains weak, an economist pointed out to the Associated Press:

"When you look at the numbers, the contrast between external demand and internal demand is as clear as night and day," said Hiroshi Watanabe, economist with Daiwa Institute of Research in Tokyo. "With payments falling, it's really hard to expect individual spending to hold up."

These are legitimate concerns. Some gloomier prognosticators think the US economy could also fall backward in the fourth quarter before resuming its growth.

But these worries don't negate the larger trend that the global economy seems to be tacking back toward growth.