TOKYO—Japan’s economy shrank more than estimated in the first quarter after the March 11 earthquake and tsunami disrupted production and prompted consumers to cut back spending, sending the nation to its third recession in a decade.
Gross domestic product (GDP) contracted an annualized 3.7 percent in the three months through March, following a revised 3-percent drop in the previous quarter, the Cabinet Office said on Thursday. The median forecast of 23 economists surveyed by Bloomberg News was for a 1.9-percent drop.
The March disaster hit an economy already weighed down by years of deflation and subdued consumer spending, and slashed profits at companies as factories were shut. The economy, now the smallest size since 1991 unadjusted for price changes, may shrink further this quarter before rebounding later in 2011 as reconstruction kicks in.
“The contraction in the second quarter will probably be even bigger as consumer spending and exports slump,” said Norio Miyagawa, senior economist at Mizuho Securities Research and Consulting Co. “The economy will likely return to growth from the third quarter once the supply-chain disruption eases and reconstruction work begins.”
The economic contraction may only be a “temporary phenomenon,” and two straight quarters of shrinkage “doesn’t necessarily mean the economy’s trajectory has changed,” Kaoru Yosano, the economy minister, told reporters.
Economists typically define a recession as two consecutive quarters of contraction.
The revised fourth-quarter GDP figure showing a 3-percent annualized contraction was more than double the previous estimate, according to the Cabinet Office.
Capital investment dropped 0.9 percent in the first quarter, the first decline in six quarters, data showed.
“It’s hard to think that companies will become aggressive about increasing business spending when uncertainties remain strong,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd.
The GDP figures were “shocking,” Toshiro Muto, a former deputy governor of the Bank of Japan, said. While the economy may resume growth in the fourth quarter, for the fiscal year ending March 2012 as a whole it may shrink by 0.4 percent to 0.5 percent, said Muto, now the head of Daiwa Institute of Research.
The economy will probably contract at a 3.3-percent annual pace this quarter, and then resume growth the next two quarters, according to the average forecast of 43 economists in a survey by the government-affiliated Economic Planning Association.
In Photo: An elderly couple walks in an area devastated by the March 11 earthquake and tsunami in Kesennuma, Miyagi prefecture, northeastern Japan on Thursday. (AP)
