Japan economy suffers worst slump in January-March qtr+

TOKYO, May 20 Kyodo -
Japan's economy suffered a record contraction in the first three months of
2009, struck by weakness in both external and domestic demand amid the economic
crisis, the government said Wednesday.

The Japanese economy, as measured by gross domestic product, shrank at an
annual pace of 15.2 percent in real terms in the period from January to March,
the Cabinet Office said in a preliminary report.
The report underlined the recession has been far deeper in Japan than in other
major economies, with its shrinkage being more than twice as bad as the United
States' annualized minus 6.1 percent in the same period.
Prime Minister Taro Aso said in the Diet that Japan's economy is ''in a severe
situation, with deterioration in the corporate sector gradually hurting the
household sector.''
It was the second consecutive quarter of double-digit annualized contraction,
following a revised 14.4 percent drop in the October-December period, as
domestic demand conditions rapidly deteriorated on top of plummeting exports of
automobiles and high-tech products, Cabinet Office officials said.
Domestic demand, including such components as consumer spending and capital
investment, sent GDP down 2.6 percentage points from the previous three months,
while demand from overseas dragged it down 1.4 points, the office said, adding
that the two negative contributions were the second largest since 1955 when
comparable data first became available.
On a quarter-to-quarter basis, Japan's GDP posted a price-adjusted 4.0 percent
drop.
The results compared with average estimates of an annualized fall of 16.2
percent and a quarterly decline of 4.3 percent in a survey of economists
conducted by Kyodo News.
Despite the dismal outcome, some economists and government officials are
anticipating that the worst may be over for Asia's largest economy, noting that
recent aggressive cuts in inventories by many Japanese firms have laid the
groundwork for them to quickly raise production levels once demand recovers.
They also say a huge package of stimulus measures prepared by the government
will help the economy to recover in the coming months.
''It is highly likely that economic growth hit bottom in the Jan.-March
period,'' said Takahide Kiuchi, chief economist at Nomura Securities Co.
Kiuchi expects the Japanese economy to recover somewhere in the upper half of
an annualized plus 3 percent in the April-June quarter.
But he noted that the uptrend will probably lose steam around the end of 2009
after positive effects from the stimulus steps and corporate restructuring
measures, such as pay cuts, run their course.
There will likely be a long, bumpy road ahead in particular as the employment
environment is increasingly becoming harsh, which would lead to a prolonged
slump in consumer spending, accounting for about 55 percent of Japan's GDP.
Last month, the government predicted Japan's economy would face a contraction
of 3.3 percent in real terms for fiscal 2009. Even if the economy is to realize
this poor outlook, it will need to secure about a 0.7 percent expansion in each
of the quarters.
Finance Minister Kaoru Yosano cautioned that the nation's economy remains
surrounded by downside risks, despite some recent signs of improvement in some
areas such as industrial output and exports.
''As concerns over significant adjustments in the job market and other areas
remain, we need to keep in mind the risk of further downward pressure on the
economy,'' Yosano, who concurrently serves as economy and fiscal policy
minister, said in a statement.
In fiscal 2008, Japan's GDP fell a record real 3.5 percent, contracting for the
first time in seven years.
In nominal terms, or before adjusting for inflation, GDP registered a fall of
3.7 percent in the year through March 31.
The total value of goods and services produced by Japan fell for the fourth
consecutive quarter for the first time ever.
In the latest quarter, private consumption decreased for the second straight
quarter, down a real 1.1 percent from the October-December period as many
consumers had second thoughts about dining out, traveling and buying expensive
items such as automobiles, the officials said.
The fall is the biggest since the April-June quarter of 1997, when consumer
spending posted a 3.6 percent drop.
Corporate capital spending fell a record real 10.4 percent as many Japanese
companies were more preoccupied with minimizing their losses than planting
seeds for future business opportunities.
Housing investment slid for the first time in three quarters, down 5.4 percent.
Public investment slipped 0.02 percent.
In addition to a 26.0 percent dive in exports, imports fell for the first time
in three quarters, down 15.0 percent. Both categories marked their biggest-ever
declines.
The GDP deflator, a broad measure of price trends, grew 1.1 percent from a year
earlier.
With the Cabinet Office on Wednesday revising downward the previous quarter's
GDP figures, the annualized decline of 13.1 percent in the January-March
quarter of 1974, when the country's economy was hurt by the global oil crisis,
became the third worst performance on record.
==Kyodo