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Japan's Economy Shrinks A Record 15.2%

Posted by: Kenji Hall on May 20, 2009

How bad is the recession in Japan? Today, the government announced that from January to March the economy shrank 4%, compared to the fourth quarter of 2008, for an annualized rate of 15.2%. It was Japan’s biggest fall in gross domestic product on record. The release coincided with the government’s downward revision of its GDP numbers for the fourth quarter to a 14.4% contraction, from 14%.

So you would expect economists to be predicting Armageddon here. But most simply shrugged at the headline figure. That’s because dismal numbers were to be expected from Japan Inc. Slammed by the sudden drop in demand for their products overseas, big manufacturers took swift action, halting production lines, laying off factory workers, and clearing out their warehouses of unwanted products and parts.

The thing about GDP data it’s a reflection of the recent past—not a snapshot of what’s happening now. Economists expect the outlook to brighten, with second-quarter GDP likely to show an improvement. Goldman Sachs’ economist Tetsufumi Yamakawa predicts Japan will get a boost from a rise in Japan’s exports to China this quarter and another lift when government stimulus spending kicks in later this year. As my colleague, Ian Rowley, and I wrote last month, some tech companies and car makers are already preparing for an upturn in orders.

The problem is, Japan’s economy could falter again at the end of this year or early next unless overseas markets turn around or consumers at home loosen their purse strings again.

Will consumers pick up the slack? It’s hard to tell now but the numbers aren’t promising. Private consumption was down 0.8% in the fourth quarter of 2008 and 1.1% in the first quarter of this year. Deutsche Securities expects one measure of workers’ pay (or “nominal compensation of employees” in the lexicon) to continue falling through the rest of this year, as companies slash bonuses and fire employees. And household savings rates in Japan are even lower than in the U.S., a trend that Goldman Sachs expects to continue at least until 2010. Don’t be surprised if Japanese lawmakers start huddling again to debate how much more taxpayer money they should spend to keep the economy from worsening.

Reader Comments

Bill Ko

May 20, 2009 2:13 PM

Japan, hang in there toughly, OK.


May 21, 2009 8:30 AM

Japan should decouple from US economy, which is cleary a lame duck, and pay more attention to BRICS emerging markets.


May 21, 2009 8:41 AM

Their economic business model works fine, as long as there are millions of American consumers living like "a bunch of welfare recipients who just hit the daily double." It also doesn't hurt to have their defense paid for by the US taxpayers.

The US taxpayer will probably continue supplying the defense but it's unlikely that the US consumer will do his part.

Peter Zim

May 21, 2009 9:42 AM

Observation: If the annualized drop in GDP of 15.2% for Japan does occur while China's GDP grows 6.5% in 2009, does this mean that China will be the number 2 economy by GDP sooner than expected? Japan still has a much higher nominal GDP per capita but on a PPP basis it will that much closer.


May 21, 2009 3:32 PM

Japan sucks


May 21, 2009 5:56 PM

Maybe now's a good time for older Japaneese to retire, leaving jobs open for younger Japaneese? They've always saved like mad, let them spend some of it. Also, China, like Japan, is about to find out that an economy based on exports alone won't last long. You have to consume your own products. America consumed their own products and everyone else's too. That's why we're too deep in debt. Americans need to make more of their own stuff and Asians need to buy more of their own stuff.


May 21, 2009 7:21 PM

@Peter Zim: According to the 2009 Economist year book, the prediction is China %8 growth and $4.8 Trillion GDP and Japan 0% growth and $5.4 Trillion GDP for the year ending in 2009. The GDP #'s are nominal figures (in dollar measurements) and not PPP. If China's growth is 6.5% instead of 8% and Japan's turns out to be -15% instead of 0%, I can't see how China wouldn't be larger or at least very very close. I suspect the 2010 year book, due out this December 2009, will predict China's GDP as larger than Japan's for 2010....IMHO.

C. H. Ng

May 21, 2009 9:28 PM

Good comment by "Squeezebox", I totally agreed with you.

Two years I had a discussion with a friend on China's economy and even at that time, we could see the nation's policy of export orientated will have to change to that for internal consumption once her people are getting richer over the years. At that time we foreseen it to be within another 5 years but now apparently the current situation demands a swifter shift to this direction.

Likewise Japan has to bend with the "wind" too or else she will soon drifted behind China.

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