Japan's GDP shrinks at fastest pace since 1955

TOKYO -- Japan's economy contracted at the fastest pace since 1955 as exports plunged and companies slashed production.

Japan's real gross domestic product, or the total value of the country's goods and services, shrank at an annual pace of 15.2 per cent in the January-March period, the government said Wednesday.

The result represents the steepest decline since Japan began compiling GDP statistics more than five decades ago. It also marks the fourth straight quarter of decline after the GDP fell a revised 14.4 per cent in the October-December period.

Economists polled by The Associated Press had expected an average 15.8 per cent drop.

On a quarterly basis, GDP fell four per cent from the previous three-month period, according to the Cabinet Office's preliminary data.

Japan's first quarter results were markedly worse than other major economies, outpacing the euro zone's 2.5 per cent quarterly decline and a 1.6 per cent contraction in the United States.

The world's second biggest economy had relied heavily on the rest of the world to buy its cars and gadgets to drive economic growth. Like its Asian neighbours, it has been pummelled by the unprecedented collapse in global demand triggered last year by the U.S. financial crisis.

Japan's exports plummeted a record 26 per cent in the first quarter from the fourth quarter, the government said.

In response, major exporters such as Toyota Motor Corp. and Sony Corp. have moved quickly to adjust by reducing shifts, suspending factory lines and announcing thousands of job cuts over the past few months. Japan's jobless rate jumped to 4.8 per cent in March, marking the highest level in more than four years.

Capital expenditure -- business investment in factories and equipment -- fell 10.4 per cent from the previous quarter, while consumer spending slipped 1.1 per cent.

Unlike previous downturns, consumption has weakened much more than income, said Richard Jerram, chief economist at Macquarie Securities in Tokyo.

"The savings rate has gone up and that has worsened the severity of the recession," he said. "That is something which is novel about the last six months. It seems that the public has basically panicked about job security to an extent that hasn't happened in previous cycles."

Recent signs, however, suggest that the worst may have passed.

The decline in exports is slowing, and with companies aggressively trimming inventories, factories are beginning to boost production. Economists say that efforts by both the public and private sectors are also starting to pay off.

The government is 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.

"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.

For the last fiscal period through March 31, Japan's GDP contracted by a record 3.5 per cent from the previous year, the Cabinet Office said. It expects the economy to shrink 3.3 per cent this fiscal year. link...