Japanese economy logs record slump

May 20, 2009
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, TOKYO, May 20 – Japan\’s economy suffered its worst contraction on record in the first quarter as a deepening global recession crushed demand for its cars, electronic gadgets and other goods, data showed on Wednesday.

Analysts said the dismal performance may mark the trough in Japan\’s worst slump since World War II, although a swift recovery seems unlikely.

The economy contracted 4.0 percent in the three months to March compared with the previous quarter, logging an annualised drop of 15.2 percent, the Cabinet Office said.

Prime Minister Taro Aso said the economy was in "a severe situation," with the recession spreading from the corporate sector to household spending.

It was the weakest performance since comparable records began in 1955, eclipsing an annualised fall of 13.1 percent in the first quarter of 1974, when the economy was reeling from a global oil shock.

It was also the first time the Japanese economy has contracted for four straight quarters. It shrank 3.8 percent in the fourth quarter of 2008, even more than previously thought, the government said.

Japan entered recession in the second quarter of 2008 as consumers around the world stopped buying big-ticket items during the economic downturn.

But experts think the economy will stabilise in the current quarter, possibly even returning to positive growth. Exports and factory output both rose slightly in March from the previous month.

"The first quarter will definitely be the low point for Japan. The pace of economic contraction should moderate from the second quarter onwards," said Glenn Maguire, chief Asia economist at Societe Generale.

However, prospects for a full-fledged recovery are still dim given weak domestic demand and the fragile state of overseas markets, analysts said.

The International Monetary Fund warned Wednesday that Japan was likely to see sluggish growth for a while yet.

"A sustained recovery is expected to take hold in 2010, but much depends on the timing and strength of the global recovery," it said in a statement at the end of a fact-finding visit by a team of experts.

Japan\’s economy saw plenty of false dawns during its so-called "lost decade" of stagnation and deflation in the 1990s, and the government warned against excessive optimism.

"The severe economic situation is expected to continue," warned Finance Minister Kaoru Yosano. "We need to keep in mind the downside risks for the economy, such as worries over a significant adjustment in the job market."

Consumer spending — which makes up more than half of the economy — fell 1.1 percent in the three months to March from the previous quarter. Exports slid 26 percent while corporate capital investment dropped 10.4 percent.

"Japan has been penalised for being at the very top of the consumer goods pyramid," Maguire said.

Its cars and home electronics have typically been bought on credit by consumers in rich countries. With households adapting to the new economic reality, a swift pick up in demand is unlikely, he said.

"We\’re unlikely to see a recovery in final demand for the types of goods Japan produces until well into 2010 — possibly even 2011," he added.

Japan\’s auto and high-tech giants have announced massive job cuts in recent months as they sink deep into the red due to the slump in exports.

The jobless rate hit a more than four-year high of 4.8 percent in March, heading towards a post-war high of 5.5 percent, last seen in April 2003.

Deflation is also creeping back with core consumer prices posting the first year-on-year fall in 18 months in March.

"With considerable slack in the economy, inflation is projected to remain mildly negative until 2011," the IMF predicted.

In an effort to ease the recession, the government has announced a series of economic stimulus packages, including a 15.4-trillion-yen (160-billion-dollar) injection unveiled last month.

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