Japan mired in recession, no sign of quick recovery

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(Agencies)
Updated: 2009-03-12 13:54

A Reuters poll of 25 economists showed the economy is expected to shrink 2.5 percent in three months to March and 0.4 percent in the following quarter, which would mark an unprecedented five straight quarters of contraction.

While analysts had thought the economy would contract most in the fourth quarter, some now think the worst may be yet to come.

"Now we are starting to think the contraction in January-March could be bigger than October-December, and we might change our forecasts," said Takahide Kiuchi, chief economist at Nomura Securities.

Many economists expect the economy to bottom out some time this year, given some signs of recovery in the Chinese economy and the impact of stimulus steps planned in the United States and Japan.

But others think the malaise could well continue beyond this year.

"We are quite pessimistic and think the Japanese economy will bottom out in 2011. We could be looking at three straight years of contraction in GDP. Consumption is likely to weaken as the labor market is worsening and people are giving up looking for work," said Deutsche's Adachi.

Central banks and government have slashed interest rates and rolled out stimulus packages in response to the global downturn, which grew out of a US housing market slump and spread through the rich world to emerging economies.

Japan pledged on Tuesday to do whatever it takes to drag its ailing economy out of recession as a rift emerged between the United States and Europe over whether governments have done enough to stimulate consumer spending.

Until recently, exports and corporate capital spending were the pillars supporting the economy, while household consumption remained tame even during the boom years from early 2002 to late 2007.

Net exports -- exports minus imports -- shaved 3.0 percentage points off GDP in the fourth quarter, in line with the initial estimate.

Highlighting the impact that the plunge in exports has had on business investment, corporate capital spending fell 5.4 percent, revised down slightly from the 5.3 percent drop initially estimated.

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