Japan‘s economic output shrank at a stunning annual rate of 12.7 percent in the fourth quarter, the steepest decline in 35 years and a harbinger of a worsening global slowdown.
The world’s second-largest economy delivered its gloomy news Monday, two days after the finance chiefs and central bankers from the Group of Seven industrialized democracies fretted over the “financial turmoil” that has engulfed them. G-7 policymakers concluded their two-day meeting in Rome without a specific plan to address the world’s worst financial crisis since the Great Depression.
The G-7 meeting commenced shortly after the European Union reported that the gross domestic product of the 15-nation eurozone plummeted at an annual rate of 5.9 percent during the October-December period. It was the steepest decline since the eurozone started compiling GDP records in 1995.
The German economy, by far the eurozone’s largest, plunged at an 8.1 percent rate. It was Germany‘s sharpest downturn since 1990.
Earlier, Britain reported that its economy declined at a 5.9 percent rate during the last quarter of 2008, its biggest contraction since 1980. The Confederation of Business Industry predicted Monday that Britain’s economy would decline by 3.3 percent in 2009, nearly double its November estimate.
The U.S. economy, which entered a recession in December 2007, declined by 3.8 percent during the fourth quarter. It was its biggest quarterly contraction since 1982.
Asian and European stock markets did not welcome the news.
In London, the FTSE 100 lost 1.3 percent Monday, while France’s CAC 40 shed 1.2 percent, and Germany’s DAX gave up 1.1 percent of its value. Italy’s S&P/MIB index was down 1.8 percent.
Japan’s Nikkei 225 Stock Average, which has plunged nearly 50 percent from its 52-week high, declined by another 0.4 percent Monday. The index is down 13 percent this year, slightly more than the 11 percent decline in the Dow Jones Industrial Average in 2009. U.S. markets were closed Monday in observance of Presidents Day.
Japan’s economy is still in free fall. The Japanese Research Institute projected Monday that first-quarter output could decline at an annual pace of 20 percent from the fourth quarter’s dismal performance. Toyota, the world’s largest auto company, said it would slash domestic output by 54 percent during the first quarter.
“There is no doubt that the economy is in its worst state in the postwar period,” Economic and Fiscal Policy Minister Kaoru Yosano said Monday. “The Japanese economy, which is heavily dependent on exports of autos, electronics and capital goods, has been severely hit by the global slowdown.”
“One of these days, Japan will wake up to the fact that subsidizing exports to the United States is no way to ensure long-term economic growth,” said Peter Morici, a business professor at the University of Maryland and a former chief economist at the U.S. International Trade Commission.
It’s not just Japanese exports that are falling. The International Monetary Fund recently projected that the volume of international trade would decline by 2.8 percent in 2009. The IMF also predicted that output of advanced economies would shrink by 2 percent this year, marking the first such contraction during the postwar period.
The G-7 countries, which produce about two-thirds of world output, include the United States, Japan, Germany, Britain, France, Italy and Canada.