March 12 (Bloomberg) -- Japan’s economy contracted at the fastest pace since 1974 last quarter as exports, output and business spending collapsed.
Gross domestic product shrank an annualized 12.1 percent in the three months ended Dec. 31, less than the 12.7 percent reported last month, the Cabinet Office said today in Tokyo. The median estimate of economists was for a 13.4 percent contraction.
Factory output and overseas shipments plunged by records in January and Toyota Motor Corp., Japan’s biggest automaker, will cut production by more than half this quarter. Real-estate company Pacific Holdings Co. filed for bankruptcy this week, becoming the 12th publicly traded firm to fail this year.
“Japan’s economy is falling off a cliff,” said Kyohei Morita, chief economist at Barclays Capital in Tokyo who correctly forecast size of the contraction. “The revision to GDP doesn’t change our basic assessment.”
The Nikkei 225 Stock Average fell 0.7 percent, paring yesterday’s 4.6 percent gain. The yen traded at 97.04 against the dollar at 10:10 a.m. in Tokyo compared with 97.41 before the report was published.
The economy contracted 3.2 percent from the third quarter, compared with the initial estimate of a 3.3 percent drop. The revision reflected a higher than expected gain in inventories, which added 0.5 percentage point to GDP compared with the initial estimate of a 0.4 point contribution.
Company Losses
Companies including Toyota and Sharp Corp. are forecasting their first losses in decades. Nissan Motor Corp. said last month it plans to eliminate 20,000 jobs.
Political gridlock has slowed Prime Minister Taro Aso’s efforts to stimulate spending, pushing his approval rating close to 10 percent ahead of elections that must be called by September. Parliament last week passed bills authorizing cash payments of at least 12,000 yen ($122) to consumers, four months after Aso pledged the money. Lawmakers are calling for more fiscal stimulus as the slump deepens.
“In the face of this unprecedented crisis, bolder economic stimulus measures should be undertaken as soon as possible,” a ruling Liberal Democratic Party group headed by lawmaker Kotaro Tamura said yesterday.
Credit Crunch
Policy makers are also trying to counter a credit crunch that has made it more costly to borrow and caused corporate bankruptcies to rise for the past nine months.
The Financial Services Agency said this week it will start to audit banks next month to make sure they lend. The government is also offering to help buy stock holdings from banks and to acquire stakes in lenders to aid loan growth.
Meanwhile, the Bank of Japan has lowered its key interest rate to 0.1 percent and is buying commercial paper and corporate bonds from banks to unclog debt markets.
“Capital market liquidity is improving,” said Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo. Still, he added, “the primary problem facing the corporate sector isn’t a squeeze from stressed capital markets, but the collapse in demand.”
Export Plunge
Even so, analysts say output may start to recover next quarter as manufacturers replenish stockpiles they managed to get rid of while their factories were left idle.
“The implication is that production and export cuts of this scale should burn through inventories reasonably quickly and allow a pickup in the second quarter -- albeit still at much lower levels than a year ago,” Jerram said.
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