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Japanese economy shrinks in second quarter

Latest update : 2008-08-13

Japan's economy contracted by over half a percentage point in the second quarter, according to official figures, confirming fears that the world's second largest economy might slip into a recession.

Japan's economy contracted by 0.6 percent in the three months to June from the previous quarter, official figures showed Wednesday amid growing fears of a recession in Asia's biggest economy.

Gross domestic product (GDP) shrank by 2.4 percent on an annualised basis, the Cabinet Office reported. It was the first contraction of the world's second largest economy in one year.

Economic growth for the first quarter of 2008 was also revised down to 0.8 percent quarter-on-quarter from 1.0 percent previously.

The slowing global economy took a heavy toll on Japanese exports, which tumbled 2.3 percent in the second quarter.

Household spending fell 0.5 percent as soaring commodity and food prices, coupled with sluggish wages, prompted consumers to tighten their purse strings.

Business investment -- which had been a key driver of Japan's recovery from recession in the 1990s -- dropped 0.2 percent.

Asia's largest economy has enjoyed a gradual recovery in recent years from a slump stretching back more than a decade, but there are concerns that the export-led recovery has now stalled.

Japan's government said last week the country's longest period of economic expansion in postwar times appeared to have come to an end.

Given the fragile health of the economy, analysts do not expect the Bank of Japan to raise its super-low interest rates from the current level of 0.5 percent any time soon, despite the highest inflation in a decade.

Date created : 2008-08-13

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