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Japanese economy contracts at record rate

Japan, which is the second largest economy in the world, shrank by 4% in the first quarter of 2009. This fall in GDP was the fastest since records began, and represented a 15.2% drop when compared to the same period a year earlier. This was also the fourth successive quarter of decline, and followed a fall of 3.8% in the last three months of 2008.

 

Japan’s economy has long been structured on the need to sell their goods overseas. However, their car companies have been particularly hit by the global recession in consumer demand as also have their electronics firms. In fact Sony has just announced its first annual loss for 14 years and is making swingeing cuts in the number of suppliers it uses in order to reduce costs, and has also cut back on employment. In the first quarter of this year there was a huge fall of 26% in Japanese exports. The economy has also had to deal with a rise in the value of the Yen, which now looks overvalued, and is contributing to the difficulty in selling abroad.

 

The Japanese prime minister, Taro Aso, raised concerns in parliament that: “Weakness in the corporate sector is gradually spreading to households … This is a very serious situation, so we need to respond appropriately.”

 

These comments were based on the fall in consumer spending of 1.1% during the first quarter of this year added to a decline in investment in plant and equipment of 10.4% over the same period. Part of the reason for this is that the Japanese savings rate, which has always been at relatively high levels historically, has gone up and the subsequent decline in spending has served to worsen the current situation. Japanese firms have traditionally been reluctant to cut jobs, but have been laying workers off over recent months. This has in turn created a feeling of lack of job security, and workers have responded to this insecurity by saving more and spending less.

 

Some commentators feel that Japan is now through the worst, and there is a general expectation that the economy will shrink by about 6% in total this year, although the IMF has reconfirmed that it expects a 6.25% contraction.

 

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Posted in Consumer Expenditure, GDP, Japan, recession

1 Comment on Japanese economy contracts at record rate

  1. The article is ver good. Write please more

    Kelly Brown | June 12, 2009 at 7:03 pm () ()