The economy contracted a faster-than-expected real 2.3 percent in annualized terms during the last three months of 2011 on slowing exports, affected by the massive flooding in Thailand and gloomier prospects for the world economy amid the sovereign debt crisis in Europe, the government said Monday.
The October-December gross domestic product also highlighted the government’s struggles to restore the world’s third-biggest economy following the March 2011 earthquake and tsunami in the face of continued downward pressure from the strong yen, although the government stressed the contraction was temporary and the economy’s upward momentum remains.
The preliminary report came as the Bank of Japan started its two-day monetary policy discussions Monday, with analysts saying the central bank could come under pressure from politicians to further ease monetary conditions.
Economists had forecast an average 1.4 percent fall in real, or inflation-adjusted, GDP in a Kyodo News survey.
For the whole of 2011, the economy shrank 0.9 percent from 2010, the first fall in two years, the Cabinet Office said. It decelerated from 4.4 percent growth in the previous year.
The GDP contraction on weakening exports amid the Thai floods, which severely damaged Japanese manufacturers by disrupting supply chains, was “largely expected and not surprising,” said Masaaki Kanno, chief economist at JPMorgan Securities Japan Co.
But Kanno also said a major surprise came from sluggish government spending. “A delay in reconstruction work (in the quake-hit Tohoku region) has amounted to a big weight on GDP,” Kanno said. “There is a possibility the timing of (Japan’s economic) recovery could be retarded” if budgets for the work are not implemented as planned.
GDP, or the total value of domestically produced goods and services, marked the first negative growth in two quarters, corresponding to a 0.6 percent contraction on a nonannualized basis from the previous quarter, during which the economy grew an upwardly revised 1.7 percent.
Exports of goods and services slowed a real 3.1 percent, with the Cabinet Office saying shipments to Europe and Asia were significantly lower. By product, vehicles and electronic parts, including semiconductors, led the decline.
The Thai floods caused serious drops in production and exports by major Japanese carmakers and high-tech firms operating facilities in the Southeast Asian country, although there is little continuing impact on the Japanese economy, according to the government officials.
Slower growth prospects for Europe amid fiscal problems in the eurozone have weighed on business and consumer sentiment in the region and imports from Asia have considerably decelerated. Japan normally exports key components to other Asian economies such as Taiwan, South Korea and Singapore, and those economies make final products for consumption in Europe.
In addition, the yen briefly surged to a postwar record 75.32 against the dollar on Oct. 31, casting a shadow over the profitability of Japanese exporters and triggering market interventions to mitigate the yen’s advance. Separate data earlier showed that Japan suffered its first annual trade deficit in 31 years in 2011.