Japan Oct-Dec. GDP Posts Sharpest Fall in 35 Years

Tokyo, Feb. 16 (Jiji Press)--The Japanese economy shrank at an
annual rate of 12.7 pct in October-December, posting the biggest contraction
in 35 years, due to a record fall in exports and sluggish corporate capital
spending in the face of the global financial crisis, a government report
showed Monday.

In the third quarter of fiscal 2008, Japan's seasonally adjusted
real gross domestic product dropped 3.3 pct from the previous quarter,
decreasing for three quarters on end, the longest down period in seven
years, the Cabinet Office said in a preliminary report.
The annualized contraction is unprecedented since the 13.1 pct
plunge in January-March 1974 that came in the wake of the first oil shock.
The reading was worse than the average forecast of an 11.5 pct
decline among 11 economic research institutes polled by Jiji Press.
Japan's GDP is expected to keep shrinking in January-March and thus
extend the downtrend for the fourth straight quarter, which is unprecedented
in its postwar history, according to analysts. For the whole of fiscal 2008
to March, the economy is projected to show the worst postwar growth.
"This is the worst economic crisis in postwar history," Economic
and Fiscal Policy Minister Kaoru Yosano said in a press conference.
In nominal terms, the October-December GDP shrank 1.7 pct quarter
on quarter for an annualized decrease of 6.6 pct. The nominal GDP
performance thus exceeded the real one for the first time in eight quarters.
While this showed the economy was out of deflation, many analysts
believe Japan risks falling back into a deflationary spiral due to
decreasing demand.
Among key GDP components, exports logged a record term-on-year fall
of 13.9 pct, exceeding the previous record drop of 9.7 pct posted in
January-March 1975, because of slumping overseas demand for automobiles and
semiconductors.
Because the economy relies heavily on exports, Japan would have to
wait for the recovery of the global economy, particularly that of U.S. and
Chinese economies, for its pickup, noted Susumu Kato, chief economist of
Calyon Capital Markets Asia BV's Tokyo branch.
But chances are slim for the United States- and China-bound exports
to improve immediately, he said.
Domestic demand lacked luster as well in October-December.
Corporate capital spending fell 5.3 pct, decreasing for the fourth
straight quarter.
Personal consumption was down 0.4 pct, reflecting sluggish spending
on automobiles, home electric appliances and clothing.
Housing investment was one of the few bright spots, growing 5.7
pct, chiefly because rises in past housing starts were added.
External demand, or net exports, pushed down the GDP by 3.0
percentage points, the worst-ever contribution.
Domestic demand made a negative contribution of 0.3 point to the
October-December GDP growth.
Many analysts said that the GDP's double-digit annualized fall was
already factored into financial markets and is thus likely to have only a
limited impact.
Still, it is highly likely that Japan's GDP will contract by around
2 pct in both fiscal 2008 and fiscal 2009, said Naoki Murakami, chief
economist at Monex Inc. The economy grew for the sixth straight year through
fiscal 2007.
The GDP deflator, a key yardstick for price trends, rose 0.9 pct,
turning up for the first time in some 10 years.
In calendar 2008, the nation's GDP declined a real 0.7 pct from the
previous year. In nominal terms, it was down 1.6 pct.
The Cabinet Office is set to announce revised October-December GDP
data on March 12.