Japan sees worst slump since WWII

TOKYO: Japan warned Monday it was in the deepest economic crisis since World War II, after Asia’s biggest economy suffered its worst contraction in almost 35 years in the fourth quarter of 2008.

The economy shrank for a third straight quarter, sinking deeper into recession as the global slowdown crushed demand for Japanese exports, a key pillar of the world’s number-two economy.

The government said the slump was even worse than the recession of the 1990s after the country’s economic bubble burst, ushering in a decade of economic stagnation and deflation.

Japan’s economy, as measured by the gross domestic product (GDP), contracted 3.3 percent in the fourth quarter of 2008—12.7 percent on an annualized basis, official data showed.

“Plunges in external demand mainly pulled the gross domestic product down. Japanese exports were hurt by the rapid deceleration of the world economy and the yen’s appreciation,” relative to other major currencies, an official from the Cabinet Office was quoted as saying.

GDP is the total market value of the goods and services produced domestically in a year.

It was the weakest performance since 1974, when the country was reeling from the first oil crisis, and the government said this slump would be even more severe.

“This is the worst ever crisis in the post-war era. There is no doubt about it,” Economic and Fiscal Policy Minister Kaoru Yosano said, warning that a rebound is impossible before the global economy improves.

The figures were even more dismal than analysts had expected and marked a sharp deterioration compared with the third quarter’s 0.6 percent contraction.

The current recession will be Japan’s “longest, deepest and most severe in the post-war period,” said Glenn Maguire, chief Asia economist at Societe Generale in Hong Kong.

Embarrassing situation

The deepening gloom came as Finance Minister Shoichi Nakagawa faced calls to be sacked over his performance at key talks on the world economy at the weekend in Rome, where he appeared drowsy and slurred his words.

Nakagawa apologized also on Monday for his behavior but denied being drunk, blaming cold medicine.

Japanese exports plunged a record 13.9 percent in the fourth quarter as demand for Japanese cars, electronics and other goods slumped in recession-hit overseas economies.

“Exports absolutely collapsed,” BNP Paribas economist Hiroshi Shiraishi said.

“The first quarter could be even worse. Exports continued to fall very sharply in January and producers are planning to cut production very, very aggressively,” he said.

Coping with crisis

Business investment in factories and equipment dropped sharply as companies scrambled to reduce their costs to cope with the recession. Household spending also slipped as consumers tightened their belts following a wave of layoffs.

Hundreds of sacked workers protested outside the headquarters of major Japanese companies Monday, calling for a better social safety net.

Japanese firms including Sony, Nissan Motor and Hitachi have announced massive job cuts in response to the country’s deepening economic woes.

Chief Cabinet Secretary Takeo Kawamura, the top government spokesman, said Tokyo needed to take fresh measures to boost the economy.

Before the global financial crisis erupted, Japan had been enjoying its longest economic recovery in post-war times.

But the recovery from the recession of the 1990s was driven almost entirely by soaring exports. With demand now cooling rapidly overseas, Japan’s economy has seen a dramatic deterioration in its fortunes.

The central bank has predicted two years of economic contraction and deflation as energy costs tumble and the economy worsens.

“Markets will once again recognize Japan as a country slipping into a deflationary spiral,” warned Naoki Murakami, chief economist at Monex Securities.

A ruling party official said over the weekend that Japan would launch a fresh stimulus package that could be worth up to 30 trillion yen ($327 billion) to fight the recession.
–AFP With Xinhua