The Cabinet Office on May 19 said that Japan’s gross domestic product in real terms in the January-March period declined 0.9 percent from the October-December period in 2010 or an annualized 3.7 percent, marking negative growth in two consecutive quarters. GDP in nominal terms, which reflects changes in prices and is said to more accurately gauge the sentiment people and enterprises have about the economy, fell 1.3 percent or an annualized 5.2 percent.
The figures point to serious damage to the Japanese economy wrought by the March 11 earthquake and tsunami and the accidents at the Fukushima No. 1 nuclear power plant. The April-June figures will likely depict a gloomier picture because production activities have been stagnant due to the power shortage caused by the nuclear crisis and the shortage of parts resulting from the disruption to supply chains.
Underpinned by strong demand overseas, exports increased 0.7 percent. But capital investment decreased 0.9 percent, the first fall in six quarters. Consumer spending, which accounts for about 60 percent Japan’s GDP, dropped 0.6 percent, a fall in two consecutive quarters. The Cabinet Office’s consumer behavior survey shows that the consumer attitude index in April dropped 5.5 points from March, the largest drop since April 2007 when the oldest comparable data were available.
The March 11 disasters have caused people to restrain their consumption. Their purse strings are likely to remain drawn tight because the prices of daily necessities, such as bread, are rising.
The spread of radioactive materials from the Fukushima power plant has caused a sharp decrease in the number of tourists visiting Japan from abroad and many tourism businesses have closed. The possibility cannot be ruled out that the restriction on electric power use in summer will worsen the business performance of small or medium-size enterprises, leading to dismissal of workers.
The government should quickly take steps to help brighten Japan’s economic prospects. An important step in that direction should be to enact a budget as soon as possible to fund the reconstruction following the March 11 disasters.