Japan suffers as its economy contracts at record speed

JAPAN'S economy shrank at a record pace in the first quarter and any lasting recovery will hinge on how soon the global economy can be healed and demand in the West can grow, economists warned yesterday .

Experts say there are signs the world's worst recession in six decades might be easing, but with companies slashing jobs and costs, any recovery remains elusive and the consumer and business confidence needed to drive demand is patchy.

Japan, the world's second-largest economy, contracted by 4 per cent between January and March as capital spending sank at the fastest pace on record and private consumption suffered its biggest decline since 1997.

Hiroshi Shiraishi, economist at BNP Paribas, said: "The export plunge is spreading to domestic demand. As such, the Japanese economy may return to growth temporarily but it could suffer a contraction again afterwards."

Like its Asian neighbours, Japan has been pummelled by the unprecedented collapse in global demand triggered last year by the financial crisis.

Manufacturers have had to suspend production, shut down plants and lay off thousands of workers, and the possibility of a rising jobless rate could drag on any nascent recovery.

Taro Aso, Japan's prime minister, yesterday said: "Weakness in the corporate sector is gradually spreading to households. This is a very serious situation, so we need to respond appropriately."

Aso is banking on massive public spending to spark a turnaround. His latest stimulus package includes programmes to bolster consumer spending, such as incentives to buy energy efficient appliances and cars.