Japan's GDP Drops, Experts Expect Turnaround

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By Blaine Harden
Washington Post Foreign Service
Wednesday, May 20, 2009; 10:17 AM

TOKYO, May 20 -- Japan's export-addicted economy shrank during the first quarter at the fastest pace in more than 50 years. But the worst appears to be over, and many economists here say the economy is now beginning to grow.

A collapse in exports, especially of cars and electronics to the United States, led to an annualized 15.2 percent decline in the gross domestic product in the first quarter of this year, the government said Wednesday. That was after a 14.4 percent annualized decline from October to December.

This wrenching drop, however, will come to a welcome end in the current quarter, according to more than 40 economists surveyed by the government-affiliated Economic Planning Association. Between April and June, they predicted, the economy will grow at an annual rate of 1.1 percent.

Rapid reductions in inventory and draconian production cuts in the past six months have set the stage for recovery, the economists said, noting that exports and industrial production rose slightly in March over the previous month. These were the first such upticks in more than half a year.

The Japanese stock market rose slightly on Wednesday, despite a worried statement from Prime Minister Taro Aso, who said the economy is in a "severe" situation.

The first-quarter numbers were a dismal punctuation point to what has been a record four consecutive quarters of economic contraction. Among the world's major economies, Japan's has shrunk the fastest since last fall.

Japan's rate of contraction is more than double that of the United States, where GDP shrank at an annualized rate of 6.1 percent in the first quarter.

Finance Minister Kaoru Yosano said unemployment, now 4.8 percent, is likely to rise for an extended period.

But he also echoed the optimism of many economists, saying said that inventory declines and government stimulus measures are beginning to give the economy a boost.

"I expect the economy to turn up at an early stage," he said, especially if parliament approves all of a $270 billion spending package that amounts to about 5 percent of the gross national product.

Investors seem to believe Japan's economy has hit bottom. Since March, stocks are up by about 33 percent from quarter-century lows. Orders for machinery, an indicator of companies' plans for future spending, have begun to rise. Consumer confidence climbed to a 10-month high last month.

When the global economic crisis surfaced last fall, the yen rose sharply against the dollar, making Japanese exports more expensive just as demand for them was disappearing. The value of the yen has moderated this year, making Japanese exports more attractive.


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