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 Feb. 16 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 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.