Japan is facing its biggest economic crisis since the Second World War, the government warned Monday, after Asia's biggest economy suffered its worst contraction in almost 35 years in the fourth quarter. Analysts said things could still get worse as the global economic downturn crushes demand for Japanese cars, electronics and other goods, forcing companies to slash jobs and investment. The economy contracted at an annualised pace of 12.7 per cent in the three months to December - its worst performance since 1974 when the country was reeling from the oil crisis, official figures showed.
Gross domestic product contracted by 3.3 per cent from the previous quarter. "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. "Japan alone won't be able to recover. The economy has no border," he told reporters. The figures were even more dismal than analysts had expected and much worse than the 0.6 per cent contraction seen in the three months to September from the previous quarter.
Exports plunged 13.9 per cent from the previous quarter as demand slumped in recession-hit overseas economies. "Exports absolutely collapsed in the fourth quarter," 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. Business investment in factories and equipment dropped 5.3 per cent as companies scrambled to reduce their costs to cope with the recession.
Household spending slipped 0.4 per cent as consumers tightened their belts following a wave of layoffs. Japanese companies including Sony, Nissan Motor and Hitachi have announced massive job cuts in response to the country's deepening economic woes. 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 recognise Japan as a country slipping into a deflationary spiral," warned Naoki Murakami, chief economist at Monex Securities. * AFP