• Home
• /
• Business

Japan back in recession

TOKYO - Japan’s economy shrank much more than expected in the first quarter and slipped into recession after the triple blow of the March earthquake, tsunami and nuclear crisis hit business and consumer spending and tore apart supply chains.

The Bank of Japan (BoJ) expects the economy to resume growing in the second half of the year, but some economists say the surprisingly grim gross domestic product figures in the first quarter increase the risk that the pace of recovery will be slower than anticipated. Manufacturers are moving to repair supply chains, but fears of power shortages in the summer and an ongoing nuclear crisis also pose risks, economists say.

The negative surprise came as inventories fell and imports jumped following losses in factory output. Still, economists expect the BoJ to keep monetary policy steady when it ends a two-day meeting on Friday while declaring readiness to ease further if the quake’s impact proves more lasting that thought. Gross domestic product fell 0.9 per cent in January-March, nearly double the 0.5 per cent forecast by analysts, translating into an annualised 3.7 per cent decline compared with a 2.0 per cent forecast, government data showed on Thursday.

The economy shrank a revised 0.8 per cent in the fourth quarter of last year, so a second consecutive quarter of contraction puts Japan in recession. Analysts also project the economy will shrink again in April-June as supply bottlenecks triggered by the March catastrophe continue to weigh on output and exports. Most economists still see growth resuming in the second half of the year as supplies are gradually restored and reconstruction spending kicks in, though there are still risks to such a scenario, including the possible power shortages. Economics Minister Kaoru Yosano sought to reinforce that view, saying the economy was going through a temporary rough patch. Yosano also sided with the central bank, which said it had done enough to support the economy when it eased policy just days after the quake, doubled its asset-buying scheme and pumped record amounts of cash into the banking system.

Yosano stressed that in contrast with the deep and severe recession during the global financial crisis, the post-quake slump in output was caused by supply concerns and there was still demand for Japanese goods and services.

The 0.9 per cent contraction in the first quarter of this year was the largest since a record 4.9 per cent plunge in the first quarter of 2009 as the financial crisis raged. It will be a challenge for the economy to return to where it was before the natural disaster, with many economists predicting only a sluggish and gradual recovery later this year.

“The Bank of Japan has done what it needs to do in terms of emergency action, so I don’t think these figures will prompt any further action.”

Some economists said, however, the initial damage to the economy was so severe that it might still need extra help. “The size of the downturn highlights the need for much more fiscal and monetary support than has been forthcoming,” said George Worthington, chief Asia-Pacific economist with IFR Markets in Sydney.

Among the biggest damper to growth was inventories, which shaved 0.5 per centage point from GDP, the largest negative contribution since the second quarter of last year.

Private consumption, which accounts for about 60 per cent of the economy, also fell 0.6 per cent, hit by a slump in automobile sales and worsening of sentiment.

Corporate capital spending fell 0.9 per cent against a market forecast of a 1.2 per cent decline.