Japan's gross domestic product (GDP) contracted by an annualized 12.7 percent in the October-December quarter of 2008, the fastest pace in about 35 years as the global financial crisis took a heavy toll on the world's second largest economy, said a government report on Monday.

It was the sharpest decrease in the country's economy since the first quarter of 1974 when its GDP suffered a decline of 3.4 percent, or an annualized 13.1 percent, due to the fallout of the first oil crisis, said the Cabinet Office in a preliminary report, indicating that Japan's economy has been mired in deeper recession.

Consumer spending, which accounts for about 55 percent of Japan's GDP, saw a 0.4 percent quarter-on-quarter fall in real terms while corporate capital spending, a main driver of Japan's six-year economic recovery since 2002, dropped 5.3 percent.

Exports tumbled at the fastest-ever pace of 13.9 percent due to the sharp appreciation of the yen amid the global economic recession, and imports, on the other hand, expanded 2.9 percent.

On November 17, 2008, Economic and Fiscal Policy Minister Kaoru Yosano announced that Japan's economy sank into its first recession in seven years in the July-September quarter of 2008 as the global financial crisis took a heavy toll on the world's second largest economy and curbed demand for its exports.

Japan's GDP, or the total value of the nation's goods and services, shrank for a second consecutive quarter in the third quarter of 2008, down by an annualized 0.4 percent in real terms. Japan, along with the 15-nation Eurozone, slipped into recession, which is technically defined as economic contraction in two quarters in a row.

Analysts believe that dramatic declines in overseas demand for Japan's autos and electronics gadgets and the sharp appreciation of yen against the U.S. dollar, which slash the profit, sales and spending projections, have continued to deal heavy blows to Japan's economy and drag it into further recession.

"WORST ECONOMIC CRISIS IN THE POSTWAR ERA"

"This is the worst economic crisis in the postwar era," Yosano was quoted as saying at a news conference Monday.

The economic and fiscal policy minister said that the Japanese economy, largely dependent on exports of autos and electronic products, has been hard hit since last autumn by "the steep downturn" in consumer spending and fresh investment in such major markets as the United States and Europe.

The "terrific slump in exports" is behind the shrinkage in Japan's GDP for the fourth quarter of 2008, he added.

Yosano, along with Chief Cabinet Secretary Takeo Kawamura, who told a separate press conference that the unprecedented economic crisis in 100 years has become a reality, believed that the early passage at the Diet and implementation of bills related to the second supplementary budget for fiscal 2008 and the state budget for fiscal 2009 will contribute greatly to tide Japan over the adverse economic conditions.

The "biggest economic stimulus measure" would be the implementation of the extra budget and fiscal 2009 budget, said Kawamura.

He said that the Japanese economy is hard hit due to its export-oriented nature which has made Japan especially vulnerable to the recent steep appreciation of the yen.

It is imperative to take measures to boost domestic demand, Kawamura said.

Favorable exchange rates, overseas investment and demand, and old industry such as steel, cars and chemicals, which are believed to be the three main pillars that lifted Japan out of the so-called "lost decade" of the 1990s, had crumbled, Martin Schulz, an economist at Fujitsu Research Institute in Tokyo, was quoted by media as saying.

He said that the recovery was built on a major global bubble and thus was unsustainable.

Now Japan's economy is "paying the price," he said.

Source: Xinhua