By Tomoko A. Hosaka
Monday, February 16, 2009
TOKYO, Feb. 16 -- Japan's economy contracted late last year at the fastest pace in 35 years, the government reported Monday, as a collapse in global demand battered the world's second-largest economy.
The Japanese government reported that the country's gross domestic product -- the total value of its goods and services -- dropped at an annual pace of 12.7 percent in the fourth quarter of 2008, the steepest such drop since the oil shock of 1974.
Economy Minister Kaoru Yosano said Monday that, with recovery nowhere in sight, Japan faces the worst economic crisis since World War II, and analysts were even gloomier in their assessment.
"Since October, economic indicators have deteriorated at a pace that defies any rule of thumb," Tetsufumi Yamakawa, chief Japan economist at Goldman Sachs, said in a recent report. "There has been an unprecedented large decline in exports and production-related indicators in particular, not only in Japan but throughout Asia."
Martin Schulz, an economist at Fujitsu Research Institute in Tokyo, said that the three main pillars underlying Japan's emergence from the "lost decade" of the 1990s -- favorable exchange rates, overseas investment and demand, and old industry such as steel, cars and chemicals -- have crumbled.
"The recovery was unsustainable," Schulz said. "It was built on a major global bubble, and now basically the economy is paying the price."
The contraction far outpaces declines of 3.8 percent in the United States and 1.2 percent in the euro zone, and it underscores the vulnerability of Asia's export-driven economies during global downturns. It also hints at more cuts in jobs, production and profits in the coming months.
It was Japan's third straight quarter of decline, and the country's GDP finished 2008 down 0.7 percent -- the first decline in nine years, according to the Cabinet Office.
A survey of economists by the Kyodo news agency had projected an 11.6 percent fourth-quarter contraction.
Japan's real exports plummeted a record 13.9 percent in the fourth quarter, the government said, as the deepening global slowdown choked off demand for the country's cars and gadgets. An appreciating yen also hurt the country's exporters, including Toyota and Sony.
Japanese electronics company Pioneer said last week that it will cut 10,000 jobs globally, joining a growing list of the country's corporate giants slashing their payrolls. Sony is shedding 8,000 workers, while Nissan and NEC are each cutting 20,000.
Media reports over the weekend said Japan may be considering additional measures to shore up its economy with fresh spending likely to top $109 billion.
Lawmakers are debating a record $963 billion budget for the fiscal year starting in April. The Yomiuri Shimbun newspaper said that once parliament passes the budget, Prime Minister Taro Aso -- who faces dismal approval ratings -- plans to announce the extra economic measures.