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15 April 2024

Japan says economic crisis worst since WWII

A construction site is seen in Tokyo. Japan's economy contracted in the fourth quarter at the fastest pace in 35 years as a collapse in global demand battered the world's second-largest economy. (AP)


Japan warned Monday it was in the deepest economic crisis since World War II, after Asia's biggest economy suffered its worst contraction in almost 35 years.

The economy shrank for a third straight quarter in the three months to December as the global slowdown crushed demand for Japanese exports, a key pillar of the world's number two economy.

The government said the slump was even worse than the recession of the 1990s when the country's economic bubble burst, ushering in a decade of economic stagnation and deflation.

Japan's economy contracted 3.3 per cent in the fourth quarter of 2008 - 12.7 per cent on an annualised basis, official data showed.

It was the weakest performance since 1974 when the country was reeling from the first oil crisis, and the government said this slump would be even more severe.

"This is the worst ever crisis in the post-war era. There is no doubt about it," Economic and Fiscal Policy Minister Kaoru Yosano said, warning that a rebound is impossible before the global economy improves.

The figures were even more dismal than analysts had expected and marked a sharp deterioration compared with the third quarter's 0.6 per cent contraction.

The current recession will be Japan's "longest, deepest and most severe in the post-war period," said Glenn Maguire, chief Asia economist at Societe Generale in Hong Kong.

The deepening gloom came as Finance Minister Shoichi Nakagawa faced calls to be sacked over his performance at key talks on the world economy at the weekend in Rome, where he appeared dozy and slurred his words.

Nakagawa apologised Monday for his behaviour, blaming cold medicine.

Japanese exports plunged a record 13.9 per cent in the fourth quarter as demand for Japanese cars, electronics and other goods slumped in recession-hit overseas economies.

"Exports absolutely collapsed," BNP Paribas economist Hiroshi Shiraishi said.

"The first quarter could be even worse. Exports continued to fall very sharply in January and producers are planning to cut production very, very aggressively," he said.

Business investment slumped as companies scrambled to reduce their costs to cope with the recession, while household spending slipped as consumers tightened their belts following a wave of layoffs.

Hundreds of sacked workers protested outside the headquarters of major Japanese companies Monday, calling for a better social safety net.

Japanese firms including Sony, Nissan Motor and Hitachi have announced massive job cuts in response to the country's deepening economic woes.

Before the global financial crisis erupted, Japan had been enjoying its longest economic expansion in post-war times.

But the recovery from the recession of the 1990s was driven almost entirely by soaring exports. With demand now cooling rapidly overseas, Japan's economy has seen a dramatic deterioration in its fortunes.

The economy should bottom out in the third quarter of 2009, Barclays Capital analysts predicted.

"With the US and China hammering out fiscal measures centered on infrastructure, the Japanese economy should benefit through an increase in exports," they wrote in a note.

Chief Cabinet Secretary Takeo Kawamura said Tokyo needed to take fresh steps to spur growth. A ruling party official said over the weekend a new stimulus package could be worth up to JPY30 trillion ($327 billion).

The gloomy data weighed on Japanese share prices, with the Nikkei-225 index ending down 0.38 per cent.