Japan economy shrinks at fastest pace in 35 years

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(Agencies)
Updated: 2009-02-16 09:41

TOKYO – Japan's economy contracted at the fastest pace in 35 years as a collapse in global demand battered the world's second-largest economy.

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Japan's gross domestic product, or the total value of the nation's goods and services, dropped at an annual pace of 12.7 percent in the October-December period, the government said Monday.

That's the steepest drop for Japan since the oil shock of 1974. It far outpaces declines of 3.8 percent in the US and 1.2 percent in the euro zone.

The contraction underscores the vulnerability of Asia's export-driven economies during global downturns and point toward more cuts in jobs, production and profits in the coming months.

Japan had its third straight quarter of decline. The GDP fell 1.8 percent in the July-September period.

Fourth-quarter GDP fell 3.3 percent from the previous three-month period, and for 2008, it contracted 0.7 percent - the first decline in nine years, according to the Cabinet Office.

With recovery nowhere in sight, Japan is now in the midst of its worst downturn since World War II, analysts say.

"Since October, economic indicators have deteriorated at a pace that defies any rule of thumb," Tetsufumi Yamakawa, chief Japan economist at Goldman Sachs, said in a recent report. "There has been an unprecedented large decline in exports and production-related indicators in particular, not only in Japan but throughout Asia."

Japan's real exports plummeted a record 13.9 percent in the fourth quarter, as the deepening global slowdown choked off demand for the country's cars and gadgets. An appreciating yen also hurt the country's exporters, including Toyota Motor Corp. and Sony Corp.

Japanese electronics company Pioneer Corp. said last week it will cut 10,000 jobs globally, joining a growing list of the country's corporate giants scrambling to slash their payrolls. Sony Corp. is shedding 8,000 workers, while Nissan Motor Co. and NEC Corp. are each cutting 20,000.

Japan slipped into recession in the third quarter after its GDP contracted an annualized 3.7 percent in the April-June period.

A recession is commonly defined as two consecutive quarters of negative growth, though many economists using other parameters say the current downturn actually began in late 2007.