Japan’s GDP plummets 12.7 percent amid record export drop (Lead)February 16th, 2009 - 4:29 pm ICT by IANS
Tokyo, Feb 16 (DPA) Japan’s economy contracted at an annual pace of 12.7 percent in the October-to-December quarter, its worst drop since the oil crisis 35 years ago, amid a record decline in exports, the government said Monday.
The contraction in the world’s second-largest economy was larger than economists had expected and came amid a 13.9 percent drop in exports, due to recessions in the US and Europe that cut demand for Japanese cars and electronics.
On a quarter-by-quarter basis, Japan’s gross domestic product (GDP) shrank 3.3 percent, according to the Cabinet Office’s initial GDP estimate from 2008’s final trimester.
The economy contracted for the third-straight quarter after falling 0.6 percent quarter-on-quarter in the three months that ended in September.
“This is the worst economic crisis in the postwar era,” Economic and Fiscal Policy Minister Kaoru Yosano said in Tokyo. “There is no doubt about it.”
The contraction was worse than those seen for the quarter in the US at one percent and the eurozone at 1.5 percent.
Japanese manufacturers have not only been battling falling foreign demand but also a drop in domestic demand and the rise in the yen’s value, which makes their goods more expensive overseas and devalues their overseas earnings.
The government estimate the drop in overseas demand caused 90 percent of the latest quarterly contraction, with falling domestic demand to blame for the other 10 percent.
Firms like Toyota Motor Corp, Sony Corp and Hitachi Ltd expect huge losses for the fiscal year, which ends in March, and are eliminating thousands of jobs.
The job cuts have in turn affected consumer confidence, causing spending to shrink, and was expected to prolong the recession.
Consumer spending, which accounts for 55 percent of Japan’s GDP, fell a real 0.4 percent in 2008’s final quarter from the quarter before. Corporate capital spending dropped 5.3 percent.
For the calendar year, the economy shrank for the first time in nine years by a real 0.7 percent.
For the fiscal year ending March 31, the government predicted contraction of 0.8 percent, but for the forecast to become reality, Japan’s economy would have to grow 5.6 percent in the current quarter, a feat economists said was unrealistic, predicting further shrinkage instead.
Prime Minister Taro Aso said he believed Japan would dig its way out of the crisis before other countries, but economists predicted the opposite, saying only when the US and Chinese economies recover could Japan also expect an upturn.
Yosano pointed to the interrelated nature of the downturn and a future recovery, saying Monday: “Japan alone won’t be able to recover. The economy has no borders.”
For the fiscal year ahead, the Bank of Japan is bracing for a two percent annual GDP drop as it projects the harshest recession since World War II.
Meanwhile, Aso’s government is struggling to win passage in the Diet of next year’s budget and a stimulus package it proposed last year.
Yosano urged speedy adoption but the opposition, which holds the majority in the upper house, is blocking the 4.8 trillion yen ($53.7 billion) stimulus measure, and Aso and his ruling Liberal Democratic Party have seen their approval ratings plummet.
Elections for the lower house must be held at the latest in September, and speculation has already begun that the party would force out Aso as it faces the possibility that it might lose power for the first time in more than 50 years.