Japan economy likely shrank by record in Q1

Tue, 05/19/2009 - 8:05am
Tomoko A. Hosaka, The Associated Press

TOKYO (AP) – Japan's economy likely suffered its worst contraction last quarter, the government is expected to report Wednesday, as exports plunged and companies slashed production.

Gross domestic product, or the total value of the nation's goods and services, shrank at a 15.8 percent annual pace in the January-March quarter, according an average forecast of seven economists surveyed by The Associated Press.

The figure follows a 12.1 percent fall in the October-December period and would mark the biggest contraction since the world's second-largest economy began compiling GDP statistics in 1955.

Japan relies heavily on the rest of the world to buy its cars and gadgets to drive economic growth. Like the rest of Asia, it has been battered by the unprecedented collapse in global demand caused last year by the U.S. financial crisis.

In response, major exporters such as Sony Corp. and Toyota Motor Corp. have moved quickly to adjust by reducing shifts, suspending factory lines and announcing thousands of job cuts over the past few months.

The government is also trying to spark a turnaround with massive public spending. Its newest $150 billion stimulus package includes incentives for consumers to buy environmentally friendly appliances and cars, as well as help for the unemployed and small businesses.

Economists say that such efforts by both the public and private sectors are starting to pay off, and predict a rebound for GDP the second quarter through June.

"We think January-March will be recognized as marking the bottom in the economy for the time being," said Masayuki Kichikawa, chief economist for Bank of America-Merrill Lynch in Tokyo, in a recent report.

The decline in exports is slowing, and with companies seeing lower inventories, factories are beginning to boost production.

Tetsufumi Yamakawa, chief Japan economist at Goldman Sachs, predicts that along with recovery in China, the government's stimulus measures will help boost annualized GDP growth by 2-3 percentage points in the second half of 2009.

He and other economists warn, however, that it remains unclear whether the likely rebound this quarter represents a longer-term recovery.

"There is some risk . . . of a double dip in the economy in 2010 or thereafter, when the effects of fiscal expansion disappear," Yamakawa said.

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