TOKYO — Japan’s economy, the world’s second largest, is deteriorating at its worst pace since the oil crisis of the 1970s, hurt by shrinking exports and anemic spending at home.
The country’s real gross domestic product shrank at an annual rate of 12.7 percent from October to December after contracting for two previous quarters, the government said Monday. When compared with the third quarter of 2008, Japan’s economy receded 3.3 percent.
The fourth-quarter results were Japan’s worst quarterly drop since its economy contracted at an annual pace of 13.1 percent in the first three months of 1974. Japan’s export-driven economy is particularly vulnerable to the current downturn.
“There’s no question that this is the worst recession in the postwar period,” Japan’s economic minister, Kaoru Yosano, said after the results were released.
The dismal figures also place Japan firmly among the worst-hit in the global crisis, dwarfing economic declines in the United States and Europe.
The economy of the United States declined at a 3.8 percent annual rate in the fourth quarter and 1 percent when compared with the previous quarter.
European Union data offices do not use annualized numbers, but the economy of the 16 countries sharing the euro currency declined by 1.5 percent in the fourth quarter when compared with the previous quarter.
Though Japan first appeared relatively unscathed, its economy has been hurt in recent months by declining overseas demand and a stronger yen.
Since then, companies like the Sony Corporation have rushed to cut jobs, helping to drive up Japan’s unemployment rate to 4.4 percent in December, from 3.9 percent in November.
Exports slumped as consumers abroad bought fewer Japanese cars and electronics. Capital outlays were hurt as companies cut investment. Consumer spending also stalled as households reined in spending amid huge layoffs.
“At one time, it looked like Japan escaped the brunt of the financial crisis. Now we see Japan’s most damaged because it’s so dependent on trade, which is stalling,” said Hideo Kumano, chief economist for the Dai-Ichi Life Research Institute. “This shows how feeble Japan’s economic fundamentals were in the first place.”
Consumer spending in Japan was weak before the effects of the financial crisis took hold, he said.
The news comes as the Group of 7 finance ministers and central bankers acknowledged at a meeting this weekend that they must confront a “severe” economic downturn that will persist for most of 2009.
Japanese officials have hinted that they would consider drafting a fresh fiscal stimulus package to stem the downturn. Prime Minister Taro Aso has promised spending worth almost 50 trillion yen ($545 billion) in two packages. But political bickering in Parliament has slowed progress.
More worryingly, Japan’s banks are also showing weakness, raising questions over the country’s role so far as a financial safe haven. At issue are the vast holdings on Japanese banks’ balance sheets, which have been battered amid the recent market sell-off, forcing many to raise capital in recent weeks.
“The worsening economy also means Japan’s banks are going to start seeing more loan defaults,” said Tatsuo Ichikawa, a Tokyo-based strategist at the Royal Bank of Scotland. “Japan, a source of stability and liquidity at the onset of the crisis, is falling very fast,” he said.
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