Japan said yesterday it expects the economy to shrink 3.3 percent over the coming year, its worst slump in at least half a century, as the government presses ahead with a record stimulus package.
The projected downturn in fiscal year 2009, which began this month, would be the worst since Tokyo began measuring growth in 1955, and follows an estimated decline of 3.1 percent in fiscal 2008, the government said.
Finance Minister Kaoru Yosano said the economy had continued to worsen rapidly since late last year.
“Against the backdrop of a global recession, exports and production have fallen sharply while employment is deteriorating rapidly,” Yosano said in parliament.
“The financial climate, such as corporate fund-raising, is also severe. Our country is surely in a state that can be called an economic crisis,” he said.
The economy began shrinking in the second quarter of 2007 and suffered an annualized contraction of 12.1 percent in the last three months of last year as the global downturn crushed exports, the country’s main growth engine.
The Japanese economy probably shrank at an annualized pace of 14 percent in the fiscal fourth quarter to last month, the Cabinet Office estimated, as it tore up its previous forecast for zero growth in the coming year.
The projected contraction in fiscal 2009 would surpass the 1.5 percent drop seen in 1998 during Japan’s so-called “lost decade” of recession and deflation.
The bleak outlook comes despite a planned ¥15.4 trillion (US$150 billion) stimulus spending plan that the government says should boost economic output by two percent this fiscal year.
Yosano said that Japan needed to reduce its dependency on foreign demand.
“In compiling the economic package, we have strictly selected policies that are necessary to support the economy and would enhance future growth power,” he said, citing measures to create jobs and investment in green technologies.
The government will issue ¥10.8 trillion in bonds to cover the extra spending, lifting Japan’s annual issuance to a record ¥44.1 trillion, adding to pressure on the country’s debt-laden public coffers.
Yosano vowed to strive for fiscal discipline for the medium term while saying it was “a common recognition in the international community” that increased public spending was necessary to overcome the current crisis.
While the government’s forecasts are bleak, recent data have sparked hopes that the slump in the Japanese economy may be easing, with exports showing signs of bottoming out and machinery orders unexpectedly rebounding.
Analysts say figures to be released this week may show that factory output in Japan picked up for the first time in six months last month.
Consumer spending is expected to remain sluggish and there are growing worries about unemployment, which analysts warn could rise above its post-war high of 5.5 percent because of the current slump.