Japanese economy continues slide

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Posted 9:44AM on Friday, March 8, 2002

TOKYO - Japan toppled into its worst recession in at least two decades as its economy shrank for the third straight quarter on a bigger-than-expected plunge in corporate investments in the final three months of last year. Japan's gross domestic product, or the value of goods and services produced in a nation, shrank 1.2 percent during the quarter ended in December, translating to an annual 4.5 percent contraction, the government said Friday. The deepening recession comes despite a surprisingly strong turnaround in the United States, where the economy grew at an annual rate of 1.4 percent during the same quarter. A U.S. recovery is almost always good news for Japan because this nation's growth depends on exports, much of it to the United States. But that was not enough to offset weak demand within Japan, which helped cripple the economy, said Mamoru Yamazaki, an economist at Barclays Capital Japan in Tokyo. ``Just because the U.S. economy recovers, it doesn't mean the world economy is going to rebound immediately,'' Yamazaki said. ``The impact may start to be felt in the latter half of fiscal 2002.'' Chief Cabinet Secretary Yasuo Fukuda noted that some data after December suggest Japan's economic free fall may be finally bottoming out. Inventory adjustments at companies have been progressing, and more companies are optimistic about the future. Even Friday's data showed consumer spending was up. ``But I must admit the economy is definitely in a bad state,'' Fukuda said. The last time this country's economy contracted for three quarters straight was in 1993, when it shrank 0.1 percent in the three months ended in June and then contracted at just below 0.0 percent for the next two quarters. Before that, Japan had never seen even two back-to-back quarters of contraction since the government began keeping such records in 1980. Japan slid into its third recession in a decade in the quarter ended in September - sinking 0.5 percent or at an annual rate of 2.1 percent. Recession is generally defined as two consecutive quarters of contraction. For the quarter ended in June, it contracted 1.2 percent. The government has already said it doesn't expect the economy to start growing until the fiscal year ending in March 2004. On Friday, Yuzo Kobayashi, a Cabinet Office vice minister, acknowledged that the Japanese economy would likely fare worse for this fiscal year ending in March than the government forecast of 1.0 contraction. ``Economic conditions will be severe throughout the current fiscal year,'' he told reporters. Still, some signs of recovery could come as soon as summer if rising exports set off a chain of good developments, such as boosted corporate profits and salaries, a move that in turn should lift domestic economic activity, said Taro Saito, economist at NLI Research Institute in Tokyo. ``That's only if everything links up positively,'' he said. The most critical factor in the latest GDP data was the 12 percent drop in private-sector investment. That helped wipe out a 1.9 percent increase in private consumption and a 2 percent rise in household consumption. The fallout from the Sept. 11 terrorist attacks also hurt the economy, the government said. Battered by the global slump, companies across the nation held back on investing more money at plants and other facilities, Saito said. During decades of modernization, Japan had public works projects and booming exports to keep its economy going. Both are running out of steam. The increasingly urbanized public is no longer interested in seeing pork-barrel spending funneled for more roads and bridges. Meanwhile, Top electronics companies are rapidly losing their competitive pricing edge against growing Asian rivals.