Japan economy shrinks at fastest pace in 35 years

Japan's economy contracted in the fourth quarter at the fastest pace in 35 years as a collapse in global demand battered the world's second-largest economy.

Japan's gross domestic product, or the total value of the nation's goods and services, dropped at an annual pace of 12.7% in the October-December period, the government said Monday.

The result represents the steepest drop for Japan since the oil shock of 1974 and far outpaces declines of 3.8% in the U.S. and 1.2% in the euro zone. A survey of economists by Kyodo news agency had projected an 11.6% contraction.

It also marks the third straight quarter of decline after the GDP fell 1.8% in the July-September period.

Fourth-quarter GDP fell 3.3% from the previous three-month period, and for 2008, it contracted 0.7% — the first decline in nine years, according to the Cabinet Office.

With recovery nowhere in sight, Japan is now in its worst downturn since World War II, analysts say.

"Since October economic indicators have deteriorated at a pace that defies any rule of thumb," Tetsufumi Yamakawa, chief Japan economist at Goldman Sachs, said in a recent report. "There has been an unprecedented large decline in exports and production-related indicators in particular, not only in Japan but throughout Asia."

Japan's real exports plummeted a record 13.9% in the fourth quarter, the government said, as the deepening global slowdown choked off demand for the country's cars and gadgets. An appreciating yen also hurt the country's exporters, including Toyota and Sony.

The figures underscore the vulnerability of Asia's export-driven economies during global downturns and point toward more cuts in jobs, production and profits in the coming months.

Japanese electronics company Pioneer said last week it will cut 10,000 jobs globally, joining a growing list of the country's corporate giants scrambling to slash their payrolls. Sony Corp. is shedding 8,000 workers, while Nissan and NEC are each cutting 20,000.

Japan slipped into recession in the third quarter after GDP contracted an annualized 3.7% in the April-June period. A recession is commonly defined as two consecutive quarters of negative growth, though many economists using other parameters say that the current downturn actually began in late 2007.

Media reports over the weekend said Japan may be considering additional measures to shore up the economy with fresh spending likely to top 10 trillion yen ($109 billion).

Lawmakers are currently debating a record 88.5 trillion yen ($963 billion) budget for the fiscal year starting in April. The Yomiuri Shimbun said once parliament passes the budget, Prime Minister Taro Aso — who faces dismal approval ratings — will announce the extra economic measures.

Japan's central bank, which lowered its key interest rate to 0.1% in December, has introduced various steps to try to thaw a corporate credit crunch. But there is little it can do to address the unprecedented decline in external demand.

The Bank of Japan policy board is scheduled to start a two-day meeting Wednesday.