Japan slides back into recession

Japan's economy plunged back into recession in January-March, contracting sharply on the impact of the nation's biggest recorded earthquake, a tsunami and a nuclear crisis, data show.

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The economy shrank by a much worse-than-expected annualised 3.7 percent in the first three months of the year, marking the second consecutive quarter of contraction, which economists define as a technical recession.

In the aftermath of the disasters, output saw its biggest ever fall and spending plunged while consumer and business confidence took a tumble.

Consumers have held off spending on non-essentials such as entertainment and travel.

Many analysts see the downturn getting worse in April-June, as nationwide supply chain problems in the wake of the quake continue to disrupt production and the threat of power supply disruption prevails.

The fall in annualised GDP was much more severe than the 2.0 percent drop forecast in a Dow Jones Newswires poll of analysts and was the first successive contraction since the 2008 financial crisis.

"The Japanese economy is expected to remain weak for the time-being," Economy Minister Kauro Yosano told reporters, adding that a third straight contraction in April-June was likely.

However, he stressed that Japan's plight would be temporary given the difference between the impact of the earthquake and that of the global financial crisis which sapped overseas demand.

"The situation is totally different from the time in the wake of Lehman Brothers' collapse. The Japanese economy is seen to be strong enough to show resilience," he said.

"The reason for the GDP's fall is clear and it is not due to sluggish overseas demand. The decline is seen to be temporary."

Private consumption, which accounts for nearly two-thirds of the economy, was down 0.6 percent as Japan adopted a mentality of self-restraint in the aftermath of the disasters.

Data earlier this week showed consumer sentiment plunging by its steepest measure on record in April.

The January-March contraction was the worst slippage since a record 18.3 percent tumble in January March 2009.

Gross domestic product fell 0.9 percent on a quarter-to-quarter basis, government data showed.

The 9.0 magnitude earthquake and a devastating tsunami has left nearly 25,000 dead or missing, and with a subsequent emergency at the Fukushima Daiichi nuclear plant it plunged Japan into its worst post-war crisis.

Many of Japan's biggest companies saw profits tumble in the quarter and have been unable to offer forecasts due to the scale of March 11's impact on production and sales.

Many component manufacturers are based in the worst-hit regions of Japan, their facilities damaged by the earthquake or inundated by the giant wave that followed.

Power shortages also threaten the economy, and while initial fears of a supply-demand imbalance going into the summer months have eased slightly, the situation is seen to remain volatile, analysts warn.

Before Japan was hit by the earthquake and ensuing tsunami, some analysts had predicted that the nation's economy would return to growth in the first quarter on the back of rising overseas demand.

Having gone into recession, analysts say however that GDP should start to grow again in the third quarter as initial earthquake-related disruption is overcome and reconstruction spending starts to boost the official figures.

"The point to watch in coming quarters is how well production can recover," said Daiju Aoki, economist at investment bank UBS.

He added there is no need for being overly pessimistic about the future of the Japanese economy. "It is unlikely that (the economy) will stay mired in recession."


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Source: AFP


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