Japan's GDP falls by record amount

Japan's gross domestic product shrank by four per cent in the first quarter, the largest reduction in its history, according to new figures released Wednesday.

The Japanese government said the world's second-largest economy contracted mainly because of the obliteration of the country's export sector and the private sector's unwillingness to invest.

Japan's Cabinet Office released GDP figures for the January-to-March period that showed an impressive 26 per cent drop in the country's exports compared to the previous three months.

The Japanese picture was even more dismal when compared to the first three months of 2008, when Japan's GDP slid by 15.2 per cent and the country's exports fell by a whopping 70 per cent.

Japan has suffered as American demand for its products has dried up. In March, the United States bought $7.06 billion US worth of Japanese goods, representing a drop of 41 per cent compared to a monthly peak of $12.1 billion in Japanese purchases reached last June.

A recession and a half

Japan's quarter-to-quarter GDP slip was the fourth straight three-month period in which national income contracted rather than expanded.

By contrast, the American economy shrank by 6.1 per cent in the latest January-to-March period versus the same timeframe one year earlier. Thus, Japan's economy posted a showing approximately 2½ times worse than the United States for the same three months.

To a large extent, Japan's private sector also stopped spending in the period. The level of corporate non-residential investment, essentially capital expenditures, fell by one-third in the first quarter of 2009 versus the first three months of 2008.

The lack of a business pulse among Japanese corporations has been punctuated by the most recent financial results of the country's largest companies.

Japan corporate losses Latest year (US)Hitachi$8B Panasonic $4B NEC $3B Nissan $2.3B Sources: News reports

NEC Corp., Hitachi and Nissan among others lost buckets of money as U.S. demand for their products fell while domestic purchases were non-existent.

As well, Japanese consumer spending also effectively disappeared in the first quarter, albeit by a smaller amount compare to business activity.

Consumer demand dropped 0.8 per cent in the first quarter of the year versus the fourth quarter of 2008 and was down 4.2 per cent compared to the first quarter of the previous year.

By contrast, American personal consumption expenditures rose by 2.2 per cent in the first three months of the year compared to the fourth quarter of 2008.