The Japanese economy is officially in recession, after a worse-than-expected contraction in the first quarter.
GDP fell 0.9% in the months from January to March, nearly double the forecast for a 0.5% contraction, as the March earthquake tore into capital spending, consumption and exports.
The numbers translate into a 3.7% year-on-year drop.
Economists are expecting further shrinkage in the April to June quarter, as supply bottlenecks triggered by the March catastrophe continue to weigh on output and exports.
But most see growth returning from the second half, as supplies are restored and reconstruction spending kicks in, a view echoed by top government spokesman Yukio Edano.
“While there may be differences in the speed at which the recovery progresses, I have no doubt that the recovery is progressing.”
Economics Minister Kaoru Yosano also sought to reinforce that view, pointing out that the post-quake slump in output was caused by supply concerns, and people still want Japanese goods and services.
Yosano is forecasting near one percent full year growth for the Japanese economy. But economists are predicting only a sluggish and gradual recovery later this year, with power shortages and weak consumption seen as potential risks.
Private consumption accounts for about 60% of the economy. This was down 0.6% in the first quarter, the second straight quarter of decline.
Japan’s automakers meantime, have been forced to shut their factories for two days each week during the peak summer months, to ease the burden on the power grid.
Markets did not react to the GDP data, and economists still expect the Bank of Japan to keep monetary policy steady, while saying its ready to ease if needed, when it ends its two-day meeting on Friday.
Bottom line: Japan’s first quarter GDP shrunk more-than-expected as the economy slipped into recession; further contraction is forecast for April-June as impact of the quake continues to weigh.