Japan’s economy shrank during the last three months of fiscal 2000, according to government data released Monday, confirming fears that the world’s second-largest economy is on the brink of another recession.
Real gross domestic product dropped 0.2 percent in the January-March quarter from the previous quarter, for an annualized drop of 0.8 percent, following 0.6 percent growth in the three months through December.
“I think the numbers speak for themselves; the economy is falling into recession,” said Jesper Koll, chief economist at Merrill Lynch.
Monday’s figures mean that GDP — the total value of goods and services produced within a nation’s borders — for fiscal 2000 rose 0.9 percent, in its second consecutive year of growth. This was short of the 1.2 percent growth projected by the government.
The quarterly data reveal a nation at the mercy of a global economic slowdown, with exports to key markets such as the United States and Asia falling 3.6 percent from the previous quarter, pulling GDP down. The drop in exports was the first in eight quarters.
“It is regrettable, but this is the actual strength of the Japanese economy,” said Heizo Takenaka, minister of economic and fiscal policy. He added that the government’s promised 1.7 percent growth for fiscal 2001 would be “extremely difficult.”
Business investment declined 1 percent, raising fears that one of the main forces driving the economy forward was petering out.
Private consumption — which makes up about 60 percent of GDP — stalled. This was despite a temporary surge in demand as shoppers hurried to stores prior to April, when a new recycling law came into effect and raised the cost of throwing away old appliances. It was the second contraction in the fiscal year, following a 0.7 percent drop in the July-September GDP, underlying the frailty of an economy that has endured stops and starts in recent years.
The gloomy figures come amid Prime Minister Junichiro Koizumi’s preparations for launching a series of reforms, and his pledge to put the brakes on ballooning public debt by keeping government spending below 30 trillion yen.
The new data will not cause the administration to detract from that pledge, Takenaka said.
“(The data) show the limits of public policies (aimed at stimulating the economy), when public works projects are not absorbed by regional economies.”
Public spending, which rose 5.2 percent from the previous quarter, prevented GDP from falling more drastically. It was the largest rise since a 14.4 percent increase in the October-December quarter in 1998.
“The results reconfirmed my resolve that structural reform is necessary,” Takenaka said.
The results raise the possibility that Japan could be heading for its fourth recession since 1990, according to a widely accepted definition of a recession being two straight quarters of decline.
GDP contracted for two straight quarters in 1992, then for three straight quarters in 1993 and another two consecutive quarters in 1999.
“All the components of demand are falling, and Mr. Koizumi has made clear that he will not be throwing money into public spending measures to nurse the economy,” Koll said. “There are clearly demand-deficiencies which deflation is further accelerating.”
Japan is left with limited policy options with interest rates at historic lows and public debt ballooning to the worst level among major industrial nations. Monday’s announcement throws into question how Koizumi will cut debt while supporting growth.
Meanwhile, Japan’s top government spokesman said Monday it is too early to discuss the possibility of compiling a supplementary budget for the current fiscal year in a bid to rev up the nation’s faltering economy.
“We believe it is too early to talk about an extra budget,” Chief Cabinet Secretary Yasuo Fukuda said at a news conference. “We will think about it while looking at the implementation of the budget” for the current fiscal year that began in April.
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