Friday, 20 May 2011

Japan in recession

The Japanese economy shrank at an annual rate of 3.7 per cent in the first quarter, tipping it unofficially into a recession, as the March 11 earthquake and tsunami disrupted production and prompted consumers to cut spending.

Japan's economy has now contracted for two quarters in a row, the generally accepted definition of a recession. Japan sank into a recession during the global financial crisis, but had emerged from it in 2009.

The drop off was worse than economists had expected. In a survey of 23 economists, Bloomberg had projected an average drop of 1.9 per cent.

With a national debt twice the size of its economy and an ageing population, Japan was struggling even before the quake took out infrastructure along its northeast coast and caused power outages.

Consumers have cut back more than expected in the wake of the disaster, throwing doubt on assertions from policymakers that the main challenge is disruption to supply chains.

After the quake, production was crippled as Japan faced a energy shortage, because of the shutdown at the Fukushima Dai-ichi nuclear plant. Economists project that the economy will shrink again in the current quarter, which ends next month. 

The country's central bank begins its two-day meeting on Thursday to discuss its monetary policy.

The Bank of Japan is expected to keep the rates unchanged at the lowest level in a range of 0.0% to 0.1%, to help stimulate the economy.

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