Japan’s economy contracted at the fastest pace in 35 years in the fourth quarter as a collapse in export demand drained life from the world’s second-biggest economy.
Japan’s GDP dropped at an annual pace of 12.7 percent in the October-December period, the government said yesterday.
That’s the steepest drop for Japan since the oil shock of 1974 and far outpaces declines of 3.8 percent in the US and 1.2 percent in the euro zone. A survey of economists by Kyodo news agency had projected an 11.6 percent contraction.
Japan now faces “the worst economic crisis in the postwar era,” said Economy Minister Kaoru Yosano, Kyodo reported.
Already, Toyota Motor Corp, Sony Corp and a slew of other companies have announced deep job cuts and projected net losses for the full fiscal year through March. The yen’s appreciation, which erodes income from abroad has only intensified the pain.
Japan’s economy has now contracted for three straight quarters.
Compared to the third quarter, GDP fell 3.3 percent. If that rate continued for a full year, the economy would contract 12.7 percent.
For all for last year, it shrank 0.7 percent — the first decline in nine years, the Cabinet Office said.
Martin Schulz, an economist at Fujitsu Research Institute in Tokyo, said the three main pillars that lifted Japan out of the so-called “lost decade” of the 1990s had crumbled — favorable exchange rates, overseas investment and demand, and old industry such steel, cars and chemicals.
“The recovery was unsustainable,” Schulz said. “It was built on a major global bubble, and now basically the economy is paying the price.”
Japan’s exports plummeted a record 13.9 percent in the fourth quarter from the third quarter, the government said, as the deepening global slowdown choked off demand for the country’s cars and gadgets.
Capital expenditure — business investment in factories and equipment — fell 5.3 percent from the previous quarter, while consumer spending slipped a modest 0.4 percent.
Japan slipped into recession in the third quarter after its economy contracted two straight quarters — a common definition of recession — though many economists using other parameters say that the current downturn actually began in late 2007.
To revive the economy, Japan’s parliament passed a contentious ¥4.8 trillion (US$52.2 billion) stimulus plan last month that includes a cash payout that amounts to ¥12,000 per Japanese taxpayer. Japanese Prime Minister Taro Aso — who faces dismal approval ratings — has championed the idea, saying it will stimulate sagging consumer spending.
Media reports over the weekend said Japan may be considering additional measures to shore up the economy with fresh spending likely to top ¥10 trillion.
Japan’s central bank, which lowered its key interest rate to 0.1 percent in December, has introduced various steps to try to thaw a corporate credit crunch. But there is little it can do to address the unprecedented decline in external demand.
The Bank of Japan policy board is scheduled to start a two-day meeting tomorrow.