Money Matters - Simplified

Japanese economy shrinks post earthquake and nuclear crisis

The Japanese economy has plunged into a recession following the worst ever earthquake which was followed by a tsunami and a nuclear crisis.

The Japanese economy has plunged into a recession following the worst ever earthquake which was followed by a tsunami and a nuclear crisis at the Fukushima Daiichi plant, data for the first quarter of this year reveals.

The data showed on Thursday that the economy has shrunk by 3.7 percent during the first three months of this year, much worse than expected.

Economy hit by disaster
It becomes the second consecutive quarter in which the economy has shrunk which is being termed as technical recession by the economists.

Aftermath of the disaster is visible in eroding confidence of the consumers and the businesses with a fall in spending and also a decrease in the output. Non essential spending like travel and entertainment has been put on hold by the consumers.

Several analysts believe that the downturn could get even worse in the second quarter of this year because the supply chain is still disrupted and the power is also not back to normal yet.

Kauro Yosano, economy minister said, “The Japanese economy is expected to remain weak for the time-being.” But he pointed out that the downturn would be a temporary phase and could not be compared with the global recession of 2009 when demand from other nations dried up completely.

He said, “The situation is totally different from the time in the wake of Lehman Brothers' collapse. The Japanese economy is seen to be strong enough to show resilience."

The minister also said that this time the reasons for a fall in the GDP are clear and it is not due to decline in the overseas demand.

Reasons behind the fall
Data released earlier this week revealed that consumer sentiment was at its lowest in April. The contraction of the first quarter of this year is the worst since the January-March quarter of 2009.

Economists had predicted, before the earthquake hit the nation, that the economy of the nation would return to growth in the first quarter of this year backed by a strong demand from overseas.

Analysts are hopeful that the GDP would return to growth by the third quarter of this year.

Dailu Aoki, an economist with IBS, an investment bank, said that there is no need to be pessimistic about the economy of the country. Ha said, “It is unlikely that (the economy) will stay mired in recession.”

Aoki added, “The point to watch in coming quarters is how well production can recover.”