Japanese economy shrank 12.1% in Q4: Govt

12 Mar 2009, 1502 hrs IST, AGENCIES

TOKYO: Japan's economy shrank less than first thought in the fourth quarter of 2008 but still logged its worst performance in almost 35 years as exports collapsed, the government said Thursday.

The world's second-largest economy contracted 3.2 percent in the three months to December -- 12.1 percent on an annualised basis -- as the global downturn choked off demand for cars, high-tech goods and other exports, data showed.

"The figures are not good," said Prime Minister Taro Aso. "The economy is worsening."

The latest snapshot was slightly less bleak than an initial estimate of a 12.7 percent drop, but it was still the worst quarter since early 1974.

The revision "is hardly something to cheer about," said Rabobank International strategist Jan Lambregts, noting that the improvement was due to higher inventories, which is not positive for the economy.

Japan was once seen as relatively immune to the financial crisis, but its economy is now shrinking much faster than many others, including the United States. The government says the crisis is the deepest since World War II.

"Exports fell off a cliff in the fourth quarter," said David Cohen, director of Asian economic forecasting at Action Economics in Singapore, who sees more trouble ahead.

In 2009 the economy is likely to shrink 5.7 percent, "which would be the worst year since the Second World War," said Cohen.

Recent data point to another sharp contraction in the first quarter of 2009. Japan logged a record current account deficit in January as exports almost halved from a year earlier, while factory output has plummeted.

The country's recovery from the 1990s recession was driven almost entirely by brisk exports. But the global downturn has caused demand for Japanese goods to dry up, prompting companies to shed tens of thousands of jobs.

"At the moment there's no light at the end of the tunnel," said Graham Davis, director of the Economist Intelligence Unit in Tokyo. "Until international demand recovers, Japan will stay in this funk."

Japan's banks escaped the worst of the subprime loan crisis but its manufacturers have been badly hurt because their products, such as cars and televisions, often drop off consumer shopping lists when times are tough.

Corporate icons such as Sony and Toyota are heading for big losses in the current financial year because of weak demand and the strength of the yen, which is bad for export earnings.

Finance Minister Kaoru Yosano called for concerted action to jump-start the global economy.

"We can make our policies more effective by each country taking fiscal stimulus measures simultaneously," he said ahead of a weekend meeting of finance chiefs from the Group of 20 nations in Britain.

Analysts expect the economy to keep shrinking through most of 2009.

"We look for the Japanese economy to hit bottom in October-December 2009, led by an increase in exports" spurred by stimulus measures in China and the United States, said Barclays Capital economist Kyohei Morita.

Tokyo's Nikkei stock index dropped to the lowest level in more than 26 years earlier this week. The Nikkei fell 2.4 percent on Thursday.

The central bank has slashed interest rates to 0.1 percent and taken steps to spur lending, such as purchases of bonds.

Japan has announced a series of stimulus packages to spur growth, though huge public debt -- a hangover from efforts to spend its way out of the 1990s recession -- has left it with limited ammunition to fight the crisis.

via:E.T