Japan's economy contracted at a much-worse-than-expected 3.7% annualized rate in the January-March period, tipping the country into a recession as the March 11 earthquake and tsunami caused declines in consumer spending, business investment and private-sector inventories.
Japan's real GDP for the January-March quarter fell 0.9% from the previous quarter, or an annualized rate of 3.7%, according to figures released by the Cabinet Office. On a quarter-to-quarter basis, GDP was down a price-adjusted 0.9%, down for the second consecutive quarter.
GDP, or the total value of goods and services produced by the nation, shrank a revised annualized 3.0% in October-December.
The first quarter decline was the sharpest since a record 18.3% contraction in January-March 2009, according to the data.
Two quarterly falls in GDP—an often-used definition of a technical recession—is also the first successive contraction since the four-quarter decrease from April 2008 through March 2009 amid the global financial crisis.
The data underline how the worst natural disaster to hit Japan in decades has foiled pre-quake expectations that the export-driven economy would escape a winter lull in the first quarter, as overseas demand improves.
The data could intensify pressure on the government to bring forward the second stimulus package to accelerate reconstruction efforts.
A drop in domestic demand took 0.8 of a percentage point off growth in the latest quarter, as business investment fell 0.9% and consumer spending contracted 0.6%.
The GDP reading was the first to include the impact of catastrophic earthquake and tsunami in March, which also triggered a still-ongoing nuclear crisis at the Fukushima Daiichi nuclear power plant. GDP contracted a revised annualized 3.0% in the October-December period.
Falls in spending on cars and services in the quarter, contributed to the decline in consumption for the period.
The March quake and tsunami hit the country's relatively rural northeastern areas, destroying factories and power stations in the region, but its impact was felt nationwide as critical supply chains were paralyzed.
Production was disrupted at major manufacturers, notably in the automobile industry.
Sentiment among Japanese consumers also plunged in the aftermath of the disaster, leading to less spending on luxury items and travel.
Japan's latest downturn has pressured the country's authorities into boosting government spending and taking more monetary policy steps. A ¥4 trillion yen extra budget to finance initial reconstruction an effort was enacted earlier this month.
Government spending rose 1.0% in January-March amid disaster-relief efforts, its strongest gain in three quarters, but was not enough to offset weakness in private sector demand.
Weakness in Japan's economy is in contrast to many other countries, which are moving toward ending stimulus policies adopted during the global financial crisis as their economies recover. In the first quarter, GDP in the 17-member euro bloc rose an annualized 3.3%, while that of the U.S. grew an annualized 1.8%.
The January-March GDP data show that as disruption to production forced many manufacturers to rely on their inventories to meet demand, private-sector inventories shrank during the period, cutting 0.5 of a percentage point off the quarterly GDP.
Exports, meanwhile, rose 0.7% for the first gain in two quarters, the data showed, confounding expectations for a on-quarter decrease.
Imports increased 2%, growing for the first time in two quarters amid high global oil prices.
The GDP deflator, the broadest gauge of price trends, fell 1.9% from a year earlier after declining 1.6% in October-December.
The supply problems in the world's third-largest economy also hit some of Japan's trade partners. U.S. manufacturing output fell 0.4% on month in April, the first decline in 10 months, as Japan's disaster limited the supply of parts needed to assemble cars in the U.S.
Before the quake, economists had seen Japan returning to growth in the quarter. Considering the economy was picking up before the quake, a large part of the latest contraction is due to the effects of the disaster.
Rather than contemplate the depth of the decline due to the earthquake, the market seems to be looking at the strength and speed of the recovery from the disaster as well as the government’s monetary policy and measures to cope with the nuclear issue.
Thus any impact of the weak January-March GDP data on the market should be limited.
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