The Shrinking Asian Giant

Talk about Titanic proportions

Feb. 12 (Bloomberg) — Japan’s economy shrank at an annual pace of more than 10 percent last quarter amid an unprecedented collapse in exports and production, a report next week may show.

Gross domestic product for the three months ended Dec. 31 contracted an annualized 11.7 percent, the sharpest slowdown since the 1974 oil crisis, according to the median estimate of 24 economists surveyed by Bloomberg News. The Cabinet Office will release the report on Feb. 16 at 8:50 a.m. in Tokyo.

Exports plunged a record 23.1 percent in the fourth quarter as global credit markets seized up and world growth sputtered. Toyota Motor Corp., Toshiba Corp. and Hitachi Ltd. — all of which are forecasting losses for the current fiscal year — have fired thousands of workers, heightening the risk a slump in household spending will prolong the recession.

“External demand has collapsed,” said Takahide Kiuchi, chief economist at Nomura Securities in Tokyo. “Japan is doing the worst among advanced economies.”

Japan’s economy probably shrank 3.1 percent from the third quarter in the first set of GDP data made available since the aftermath of Lehman Brothers Holdings Inc.’s bankruptcy in September, economists said. That would be almost triple the pace of contractions in other major economies — the U.S. shrank 1 percent quarter-on-quarter and a report out this week is expected to show the Euro-zone GDP fell 1.3 percent.

Lehman’s Collapse

Lehman’s collapse triggered a credit crisis that erased more than $10 trillion from global equity markets, hobbling U.S. consumers and paralyzing global trade. The meltdown also spurred a 15 percent surge in the yen against the dollar, reducing earnings for Japanese exporters already coping with weak demand.

Net exports — the difference between exports and imports — accounted for 2.3 percentage points of Japan’s contraction last quarter, according to economist forecasts. Domestic demand, which includes household spending and capital investment, probably subtracted 0.9 percentage points from growth, they said.

In contrast with the U.S. and China, where governments are moving forward with a combined $1.4 trillion in stimulus spending, policy makers in Japan are providing little help.

Parliamentary gridlock has blocked the passage of a 10 trillion yen ($111 billion) stimulus package intended to encourage consumer spending. The Bank of Japan, which in December cut its key rate to 0.1 percent and has started to purchase shares and corporate debt from banks in order to spur lending, has little means to address what analysts say is the economy’s central problem: a lack of overseas demand.