TOKYO — Japan toppled into its worst recession in at least two decades after the economy shrank for the third straight quarter on a bigger-than-expected plunge in corporate investments.
Japan's gross domestic product, or the value of goods and services produced in a nation, shrank 1.2 percent during the quarter that ended in December, translating to an annual 4.5 percent contraction, the Cabinet Office said Friday.
That was despite a strong turnaround in the U.S. economy, which grew at an annual rate of 1.4 percent during the same quarter.
Japanese growth depends heavily on exports, many of which go to the United States.
But the U.S. recovery was not enough to offset weak demand within Japan, which helped cripple the economy, said Mamoru Yamazaki, an economist at Barclays Capital Japan in Tokyo.
"Just because the U.S. economy recovers, it doesn't mean the world economy is going to rebound immediately," Yamazaki said. "The impact may start to be felt in the latter half of fiscal 2002."
The last time the economy contracted for three quarters straight was in 1993, when it shrank at around 0.0-0.1 percent each quarter.
Before that, Japan had never seen even two back-to-back quarters of contraction — the usual definition of a recession — since the government began keeping such records in 1980.
On Friday, Yuzo Kobayashi, a Cabinet Office vice minister, acknowledged that the Japanese economy would likely fare worse than the 1.0 percent contraction forecast by the government for this fiscal year ending in March. "Economic conditions will be severe throughout the current fiscal year," he told reporters.
The most critical factor in the latest GDP data was the 12 percent drop in private sector investment.
That helped wipe out a 1.9 percent increase in private consumption and a 2 percent rise in household consumption. The fallout from the Sept. 11 terrorist attacks also hurt the economy, the government said.
Battered by the global slump, companies held back on investing more in plants and other facilities, said Taro Saito, economist at NLI Research Institute in Tokyo.
Some signs of recovery could come by summer if rising exports set off a chain of good developments, such as boosted corporate profits and salaries, a move that in turn should lift domestic economic activity, he said.
"That's only if everything links up positively," Saito said.
But fixing Japan's economic problems requires basic change.
During decades of modernization, Japan had public works projects and booming exports to keep its economy going. Both are running out of steam.
Top electronics companies are rapidly losing their competitive pricing edge against growing Asian rivals. The increasingly urbanized public is no longer interested in seeing pork-barrel spending on roads and bridges.
Chief Cabinet Secretary Yasuo Fukuda tried to inject some optimism by noting that some data after December suggest Japan's economic free fall may be finally bottoming out.
Inventory adjustments at companies have been progressing, and more companies are optimistic about the future. Even Friday's data showed consumer spending was up.
"But I must admit the economy is definitely in a bad state," Fukuda said.