Japan's GDP shrinks 15.2 per cent in January-March 2009

Japan's economy shrank at its fastest pace recorded since 1955 in the January-March 2009 period, as the country's exports collapsed due to the ongoing global recession.

According to a preliminary report compiled by the Japanese cabinet office reveals that the country's economy shrank at an annual pace of a record 15.2 per cent  during the first quarter of the year, as global and internal demand for its products virtually dried up.

Cabinet office officials said it was the second consecutive quarter of double-digit annualised contraction, following a revised 14.4 per cent drop in the October-December period, as domestic demand rapidly deteriorated in addition to exports collapsing.

Japan's gross domestic product (GDP) dropped  4 per cent on a quarter-to-quarter basis. Last month, the government had expected the country's economy to shrink 3.3 per cent in real terms for fiscal 2009.

The effect of the recession in Japan has been far deeper than in other major economies, with Japan's economy shrinking more than twice that of the 1.6 per cent fall of the US economy and Europe's  2.5 per cent decline, compared with the previous quarter. (See: Europe's estimated GDP to decline 2.5 per cent in 1Q - Eurostat) 

Japan GDP fell 3.5 per cent for the year ended 31 March, confirming that Japan is in the midst of the worst recession since World War II.

Domestic demand, including factors such as consumer spending and capital investment, reduced the GDP 2.6 percentage points from the previous three months, while export demand pulled it down 1.4 points.

In the first quarter of 2009, Japan's exports declined by 26 per cent while imports fell 15 per cent, for the first time in three quarters. Both sectors marked their biggest-ever declines.

For the first time Japan's total value of goods and services produced fell for the fourth consecutive quarter. Its corporate capital spending dropped a record 10.4 per cent in real  terms from the October-December period, while private consumption decreased a 1.1 per cent.

For the first time in three months housing investment dropped 5.4 per cent while public investment fell 0.02 per cent. The GDP deflator, a broad measure of price trends, grew 1.1 per cent from a year earlier.

Japan's economy which is heavily depended on exports has been hit the hardest by the global financial crisis.

Japan's economy is in a severe situation, with deterioration in the corporate sector gradually hurting the household sector, Prime Minister Taro Aso said during a session of the House of Councillors budget committee.

However, Aso maintained a positive outlook for the future and said positive effects of the government's economic stimulus measures are beginning to appear, pointing to the leading indicator, a recent recovery in machinery orders.

''We have to take appropriate actions while checking on these signs (of improvement),'' he said.

Finance minister Kaoru Yosano said going forward the progress in inventory adjustments and the government's economic stimulus measures will prop up the economy and called for an early passage of a supplementary budget for fiscal 2009 to put into action the  largest  ever government spending  measures. (See: Japan unveils supplementary budget of ¥15.4 trillion)

He cautioned that the nation's economy was still surrounded by downside risks, despite some recent signs of improvement in some areas such as industrial output and exports.

Despite the poor GDP result, some analyst are of the opinion that the worst may be over for Japan as recent aggressive cuts in inventories by many Japanese firms have laid the path for raising production levels once demand recovers.

In-addition, the government's stimulus package will help the economy recover in the coming months.

Despite the downturn, some Japanese companies are using innovation  and introducing high-quality products at low prices. Others are coming out with new products or introducing products in new markets. (See: Toyota to launch Lexus in India soon) or  Toyota is said to be using technology to develop an innovative environmental vehicle in its quest to dominate alternate-fuel vehicles. (See: Toyota secretly developing total solar energy powered car)