Japanese economy 'in recession' after quake and tsunami

Japan’s economy contracted sharply in the first quarter, veering back into recession as factory production and consumer spending wilted in the aftermath of March 11 earthquake and tsunami.

Japan’s economy contracted sharply in the first quarter, veering back into recession as factory production and consumer spending wilted in the aftermath of March 11 earthquake and tsunami.

Real gross domestic product – a measure of the value of all goods and services produced domestically – shrank at an annualised rate of 3.7% in the January-March period, the Cabinet Office said today.

The result marks the second straight quarter that the world’s third-ranked economy has lost steam and undershoots an annualised 2.3% fall forecast in a Kyodo News agency survey.

While there is no universally accepted definition of a recession, many economists define it as two consecutive quarters of GDP contraction. Others consider the depth of economic decline as well as other measures like unemployment.

Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo, said there is “no doubt” that recession has returned. More surprising is just how quickly the economy crumpled, he said.

The latest GDP report includes just 20 days following the disaster, but “the impact is huge,” said Mr Schulz, who had expected to see most of the economic fallout in the second quarter.

The magnitude-9.0 earthquake and tsunami left more than 24,000 people dead or missing, and wiped out entire towns in the hardest-hit areas. Damage is estimated at $300bn (€210bn), making it the most expensive natural disaster in history.

It damaged factories in the region, causing severe shortages of parts and components for manufacturers across Japan, especially carmakers. A crippled nuclear power plant caused widespread power shortages that added to the headaches faced by businesses and households.

As a result, Japan’s factory production and consumer spending both fell the most on record in March. Exports in March went south for the first time in 16 months. Companies are reporting lower earnings and diminished outlooks for the rest of the fiscal year.

The recent events have deeply unnerved households, who are likely to remain cautious for the coming months, Mr Schulz said.

“The nuclear disaster showed just how much is wrong in Japan actually,” he said. “And many things that seemed so stable and sure like electricity supply ... are looking not safe at all.”

Toyota, Japan’s biggest carmaker, said last week that its quarterly profit tumbled more than 75% because of parts shortages after the tsunami. As of May, the crisis cost the company production of 550,000 vehicles in Japan and another 350,000 overseas.

Toyota is expected to lose its spot as the world’s top-selling carmaker to General Motors this year.

Even before the disaster, Japan’s economy was shaky.

In a historic shift, China overtook the country as the world’s number two economy last year. Japan struggled to address a slew of problems including years of deflation, a rapidly ageing and shrinking population, and ballooning public debt. Japanese companies increasingly relied on exports to drive growth and offset the persistently lacklustre demand at home.

After four solid quarters of growth, Japan’s GDP turned negative in the last three months of 2010 due to weaker exports and consumer demand. The downturn was expected to be temporary.

Instead, Japan has now recorded consecutive quarters of contraction for the first time since the global financial crisis. GDP fell for four straight quarters starting April 2008.

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