GDP points to recession

Japan's economy posts nominal 0.6% contraction

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The nation’s economy stalled in the January-March term as exports, Japan’s main engine for four quarters of growth, petered out, according to preliminary figures announced Friday by the Cabinet Office.

The data support many economists’ fears that the nation could find itself in recession again as early as fall.

Real gross domestic product squeezed out 0.006 percent growth for the last three months of fiscal 2002, which ended March 31. For the full year, that meant the economy grew 1.6 percent in real terms, beating revised Cabinet Office estimates of 0.9 percent expansion.

But the positive numbers belie entrenched deflation, or price falls that continue to eat away at the economy. In nominal terms without calculating in price-change factors, the economy contracted 0.6 percent, with the GDP for the full year shrinking 0.7 percent to below 500 trillion yen for the first time in eight years.

The GDP deflator — a measure of the overall inflation rate — logged its worst-ever quarterly decline of 3.5 percent, and its largest decline of 2.2 percent for the full year. The deflator has been stuck in negative territory for five years.

“The economy is idling, with very little driving it forward,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. “Today’s GDP figures show that the economy is definitely looking downward, just as people are feeling increasingly closed in by a slowly shrinking economy.”

A nation’s GDP shows the value of goods and services within its borders. A recession is widely defined as two consecutive quarters in which this value contracts.

The value of exports shrank 0.5 percent compared with the previous quarter, when it grew 4.5 percent, according to Friday’s data. Personal consumption, however, proved surprisingly resilient, growing 0.3 percent in real terms following zero-growth the previous quarter.

But because few economists predict strong strides in personal consumption in the face of declining expendable income, hopes that the economy might hold contractionary pressures at bay are fixed largely on external demand.

“As long as Asia and the U.S. pick up in the bottom half (of the calendar year), Japan can squeak through,” said Paul Sheard, Lehman Brother’s chief economist for Asia. The situation in Asia hinges on the containment of the severe acute respiratory syndrome virus, and positive developments in the U.S. economy — neither of which are foregone conclusions, he cautioned. “Things are very delicate in Japan; the economy may be skirting recession.”

Aggressive macroeconomic policy coordinated with reforms in the banking sector, instead of halfhearted efforts, would be extremely helpful now, he said.

Ministers acknowledged some of the risks to the economic outlook.

“Deflation remains severe,” said state minister Heizo Takenaka, who is in charge of financial, economic and fiscal policy. “We will push forward on structural reforms to make sure we can resume sustainable growth.”

Flexible implementation of the fiscal budget may be an option for the government in pursuing economic policy, he said.