(By Don Miller) Japan’s Cabinet Office said today (Wednesday) that economic output fell to its worst levels ever, tumbling an annualized 15.2% in the first quarter, as the worst recession in 60 years hammered exports and consumer demand.
Despite the disturbing news from Japan - the world’s second largest economy - some analysts are optimistic that the record gross domestic production (GDP) decline may be the low point, with business activity picking up from here.
“There was a collapse across the board,” Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo, told Bloomberg News. But there’s “light at the end of the tunnel,” he said, adding that he believes the economy will rebound this quarter as companies replace inventories and stimulus plans begin to take effect.
Prime Minster Taro Aso has set forth the largest stimulus plan in Japanese history, promising to pump $160 billion into the economy, mostly geared towards lifting consumer spending, which accounts for about 55% of GDP.
Japanese consumers were the biggest factor in the decline. Consumer spending fell 1.1%, trimming 2.6 percentage points off GDP - the most since 1974, Bloomberg reported.
Analysts say that declining exports are a big reason for the decline in consumer spending.
“The export plunge is spreading to domestic demand,” BNP Paribas SA (OTC: BNPQY) economist Hiroshi Shiraishi told Reuters. “As such, the Japanese economy may return to growth temporarily but it could suffer a contraction again afterwards.”
Net exports - the trade gap between exports and imports - shaved 1.4% off overall economic output.
Toyota Motor Corp (ADR NYSE: TM), Hitachi Ltd. (ADR NYSE: HIT), and Panasonic Corp. (ADR NYSE: PC) all projected mounting losses for fiscal 2009. Panasonic said last week it plans to close about 20 factories this year and cut 15,000 jobs. Hitachi will slash spending by $5.2 billion this year and shed 7,000 workers, Bloomberg reported.
Still, there are faint signs of recovery in both exports and consumer spending, triggering cautious optimism among some analysts and government officials.
Consumer confidence jumped to a 10-month high in April and exports increased in March over the previous month. Factory output also jumped for the first time since September as companies cut inventories.
The Wall Street Journal reported last week that Honda plans to increase production in Japan this quarter as dealers have begun clearing inventories. Car sales may have “bottomed” in Japan and the U.S., Fuji Heavy Industries Ltd. (ADR OTC: FUJHY) President Ikuo Mori said in Tokyo, according to Bloomberg.
“While the economy will continue to be in a severe state, I expect less pressure from inventory adjustments and the stimulus package to provide support,” Economy and Fiscal Policy Minister Kaoru Yosano said after Wednesday’s report,
Bloomberg reported.
