World

Japan Economy Shrinks Again

By CBSNews.com staff CBSNews.com staff

December 3, 1998 / 7:35 AM EST / CBS

The Japanese economy shrank for the fourth straight quarter, continuing to wallow dangerously in the nation's deepest recession in decades, the government said Thursday.

Japan's gross domestic product (the measure of all goods and services produced in the country) declined by 0.7 percent in the three months from July through September, compared to the previous quarter, the Economic Planning Agency said.

The economy contracted at an annual rate of 2.6 percent, the agency said.

If the trend continues, the economy will shrink for the second consecutive year, something the Japanese economy has not done since the end of World War II.

The World Bank warned Wednesday that if the Japanese economy does not turn around soon, the world economy faces a substantial risk of plunging into recession next year, rather than undergoing sluggish growth.

Japan has been battered by Asia's financial meltdown, which has slashed exports, long the mainstay of its economic growth.

During his trip to the region last month, President Clinton singled out Tokyo as a key to Asia's recovery from the currrent economic meltdown.

Tokyo-based economists surveyed by Dow Jones Newswires had forecast on average a 0.5 percent drop in GDP for the period from July through September from the prior quarter.

The economy shrank by 0.7 percent for the April-June period, compared to the previous quarter. That marked the third straight quarter of decline and the worst record since the government began releasing GDP data in 1955.

Initially, the EPA had reported that figure as 0.8 percent but revised it on Thursday.

Earlier this year, the government revised its initial estimate of 1.9 percent growth for this fiscal year ending March 31 next year. It now says the economy will contract by 1.8 percent.

Economic Planning Agency head Taichi Sakaiya reiterated Thursday that what actually happens may be worse than that prediction. But he said the next quarter's results will likely not be as bad as Thursday's figures.

The economy shrank by 0.7 percent for the last fiscal year ending in March 1998, its first annual drop since 1974.

Determined to prevent the recession from dragging on further, Japan last month announced a stimulus package including public works spending and income tax cuts. It is unclear if and when the effects of such measures will begin to be felt.

The government has also passed a package of bills to bail out Japan's many troubled banks. The banks were left with massive loans gone sour, left over from the excessive lending and speculation of the 1980s.

The ensuing credit crunch has sent unemployment and bankruptcies shooting to record highs. Consumer spending has been plummeting, placing pressure on countries that export to Japan to make their products more attractive by further slashing the value of their currencies.

In recent weeks, various Japanese government officials have mad comments about some signs of an economic recovery.