Japan's economy shrank in the final three months of 2011 as exports suffered, data showed today, but analysts say disaster reconstruction projects at home are likely to stave off a new recession.
On an annualised basis, the economy contracted a worse-than-expected 2.3% in the October-December quarter, a sharp drop on the previous quarter's growth, owing to the strong yen, falling overseas demand and flooding in Thailand that hammered production.
The world's number-three economy shrank 0.6% quarter-on-quarter, the Cabinet Office said, and 0.9% through 2011. It had grown by 4.4% in 2010. However, ministers and analysts tipped a rebound this year as government reconstruction programmes after the March 11 disasters begin to bear fruit.
Severe flooding in Thailand in the autumn disrupted global supply chains and the production capability of Japanese manufacturers, particularly electronics suppliers and car makers, just as they were recovering from the quake-tsunami disaster at home.
The floods compounded Japan's struggles against a continually strong yen, which is sitting close to record highs against the dollar and is also putting pressure on the euro.
The data came as the country's key export markets in the US and Europe struggle with huge debt troubles and unemployment, struggling to get back on track after the global downturn.
The contraction was more severe than the annualised 1.6% drop forecast by economists. It also sharply contrasted to a revised quarter-on-quarter growth of annualised 7% for the months between July and September, which was in part boosted by post-March 11 reconstruction.
Economic and Fiscal Policy Minister Motohisa Furukawa said that despite today's figures, the economy continued its "upward movement" with exports and production improving month-on-month in December.
The contraction "came after external demand was significantly reduced due to the one-off factor of the Thai flooding, which came amid the weak recovery of economies overseas", he said in a statement.
"Having taken into account (the recovery of exports and production in December) and the overall economic situation, it is assessed that upward movement is continuing," he said.
The government in December downgraded growth forecasts for the year to March 2012 to a contraction of 0.1% but expected a 2.2% expansion in the year from April.
