Tokyo - Japan's economy, the second largest in the world, has entered its first recession in seven years as the global financial crisis batters exports and business investment, official data showed on Monday.
Japan joins Germany and Italy on the list of major economies that are officially in recession, despite emergency steps by world powers to try to shield the global economy from months of turmoil on financial markets.
The Japanese economy unexpectedly contracted by 0.1% in the three months to September, after shrinking 0.9% in the second quarter of the year, according to figures from the Cabinet Office.
The data "showed that the economy is in a recession phase. There are risks it may worsen further," said Economic and Fiscal Policy Minister Kaoru Yosano.
It is the first time since the third quarter of 2001 that Japan has entered a recession, which is usually defined as two or more consecutive quarters of negative economic growth.
Gross domestic product (GDP) contracted at an annualised rate of 0.4%.
Analyst forecasts, on average, had been for modest growth of 0.1% quarter-on-quarter. Tokyo's Nikkei stock index fell 1.3% in early trade.
Business investment slumped 1.7% in the third quarter while exports were worse than expected, as the financial crisis triggered by a US housing slump squeezed other major economies.
"Japan was dragged down by the weakness in the global economy," said Kyohei Morita, chief Japan economist at Barclays Capital, who expects the recession to last for four quarters in total.
No escape
Although Japan has not suffered financial turmoil on the same scale as the United States or Europe, its trade-dependent economy remains highly vulnerable to global downturns.
"Japan is as export-driven as ever. So as long as exports are slowing due the weakness of the global economy, we cannot escape," said Morita.
After suffering a series of on-off recessions in the 1990s, Japan had been slowly recovering on the back of brisk exports and business investment.
Corporate profits, however, are now sliding as exports suffer from the global slowdown, prompting companies to slash investment in new equipment and factories, which had been a key driver of economic growth.
Consumer spending rose 0.3% in the third quarter helped by a hot summer and demand for televisions ahead of the Beijing Olympics.
But analysts said Japanese consumers are likely to tighten the purse strings as the economy worsens and companies shed workers.
"We are already seeing the start of a vicious cycle in which a worsening labour market leads to slack consumption," said Naoki Murakami, chief economist at the Monex brokerage firm.
Analysts see little prospect of a recovery any time soon. The Japanese economy is expected to contract 0.1% in 2009, according to the Paris-based Organisation for Economic Cooperation and Development.
- AFP