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Tuesday, Feb. 17, 2009

GDP plunge worst in 35 years

Export-dependent economy 'battered' by downturn: Yosano


Staff writer

The economy plummeted at an annualized pace of 12.7 percent in the three months through December, the worst fall in the past 35 years. Gross domestic product for 2008 shrank 0.7 percent in real terms, compared with 2.4 percent growth in 2007.

The Cabinet Office in a report released Monday said weak overseas and domestic demand led the GDP to contract for the third straight quarter, following an annualized 2.3 percent July-September fall.

"This is the worst crisis in the postwar era. There is no doubt about it," economic and fiscal policy minister Kaoru Yosano said.

"The Japanese economy, whose growth is heavily dependent on exports of automobiles, machinery and IT equipment, was literally battered" by the global downturn, he said.

The government will consider fresh stimulus measures to revive the economy, Yosano said.

The results are in line with economists' expectations as the plunge in the trade surplus and sharp drops in revenue at Toyota Motor Corp. and other exporters have already been announced.

"The result was just what we had forecast," said Takahide Kiuchi, chief economist at Nomura Securities.

Worsening overseas demand was noteworthy, he said. Net exports of goods and services contributed to lowering the GDP by minus 3 percentage points in October-December.

The global financial crisis is cooling the Japanese economy via the plunge in exports, Kiuchi noted.

GDP, the broadest measure of economic activity, contracted 3.3 percent in October-December from the previous quarter.

In nominal terms, the economy contracted 1.7 percent in the quarter, or an annualized contraction of 6.6 percent.

Household consumption fell 0.4 percent in October-December, or an annualized contraction of 1.7 percent. Private-sector capital investments plunged 5.3 percent, or an annualized contraction of 19.5 percent.

While agreeing that the latest figure was within experts' earlier projections, Koichi Haji, chief economist at NLI Research Institute, said the global economic meltdown is truly being felt here.

"Since overseas demand collapsed, domestic demand (everywhere is) bad," Haji said. "(The figure) clearly showed the fire is not merely on the other side of a river."

Kiuchi expects the economy to continue to post almost double-digit negative growth in the January-March quarter because overseas demand will not stop deteriorating soon.

The economy, however, may shrink at a slower pace or post slightly positive growth in the April-June quarter as the financial crisis will ease slightly and overseas demand will not deteriorate as fast.

With the benchmark interest rate currently at 0.1 percent, the Bank of Japan Policy Board is set to meet later this week. Haji said the BOJ may announce further finance-easing measures, including cutting interest rates.

Kiuchi said the BOJ may resume quantitative easing policies, including buying corporate debts and taking other measures to increase money supply from March or later.

However, financial measures will not be enough to shore up the economy due to the already low interest rate, Haji said, anticipating large-scale fiscal expenditures. While pointing out that the current recession was principally caused by "overseas factors," Kiuchi also said additional economic measures will be discussed in the government.

To strengthen the economy, Kiuchi suggested that government spending focus on the environment and on improving the transportation infrastructure, including expansion of Haneda airport in Tokyo.

The yen rose to 91.59 per dollar from 91.76 on speculation Japan will refrain from taking measures to weaken the currency. The yen's 18 percent gain over the past year has compounded exporters' woes by eroding the value of their overseas sales.

The 3.3 percent drop in Japan's GDP in the fourth quarter compared with a 1 percent contraction in the U.S. and the euro zone's 1.5 percent decline, which was the sharpest in at least 13 years.

Information from AFP-Jiji, Bloomberg added



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