Japan said today that it expects the economy to shrink 3.3% over the coming year, its worst slump in at least half a century, as the government presses ahead with a record stimulus package.
The projected downturn in fiscal year 2009, which began this month, would be the worst since Tokyo began measuring growth in 1955, and follows an estimated decline of 3.1% in fiscal 2008, the government said.
Finance Minister Kaoru Yosano said the economy had continued to worsen rapidly since late last year.
'Against the backdrop of a global recession, exports and production have fallen sharply while employment is deteriorating rapidly,' Yosano said. 'The financial climate, such as corporate fund-raising, is also severe. Our country is surely in a state that can be called an economic crisis,' he added.
The economy began shrinking in the second quarter of 2007 and suffered an annualised contraction of 12.1% in the last three months of 2008 as the global downturn crushed exports, the country's main growth engine.
The Japanese economy probably shrank at an annualised pace of 14% in the fiscal fourth quarter to March, the Cabinet Office estimated, as it tore up its previous forecast for zero growth in the coming year.
The projected contraction in fiscal 2009 would surpass the 1.5% drop seen in 1998 during Japan's so-called 'lost decade' of recession and deflation.
The bleak outlook comes despite a planned 15.4 trillion yen ($150 billion) stimulus spending plan that the government says should boost economic output by two percent this fiscal year. Yosano said that Japan needed to reduce its dependency on foreign demand.
While the government's forecasts are bleak, recent data have sparked hopes that the slump in the Japanese economy may be easing, with exports showing signs of bottoming out and machinery orders unexpectedly rebounding.
Analysts say figures due to be released this week may show that factory output in Japan picked up for the first time in six months in March.
But consumer spending is expected to remain sluggish and there are growing worries about unemployment, which analysts warn may rise above its post-war high of 5.5% because of the current slump.
