Japan's economy falls back into recession amid decreased factory production, consumer spending after March 11 earthquake; Q1 GDP fell at annualized rate of 3.7%, its second straight quarterly decline

TOKYO , May 19, 2011 () – Japan's economy contracted sharply in the first quarter, veering back into recession as factory production and consumer spending wilted in the aftermath of March 11 earthquake and tsunami.

Real gross domestic product -- a measure of the value of all goods and services produced domestically -- shrank at an annualized rate of 3.7 percent in the January-March period, the Cabinet Office said Thursday.

The result marks the second straight quarter that the world's No. 3 economy has lost steam and undershoots an annualized 2.3 percent fall forecast in a Kyodo News agency survey.

While there is no universally accepted definition of a recession, many economists define it as two consecutive quarters of GDP contraction. Others consider the depth of economic decline as well as other measures like unemployment.

Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo, said there is "no doubt" that recession has returned. More surprising is just how quickly the economy crumpled, he said.

The latest GDP report includes just 20 days following the disaster, but "the impact is huge," said Schulz, who had expected to see most of the economic fallout in the second quarter.

The magnitude-9.0 earthquake and tsunami left more than 24,000 people dead or missing, and wiped out entire towns in the hardest-hit areas. It damaged factories in the region, causing severe shortages of parts and components for manufacturers across Japan, especially automakers.

A crippled nuclear power plant caused widespread power shortages that added to the headaches faced by businesses and households.

As a result, Japan's factory production and consumer spending both fell the most on record in March. Exports in March went south for the first time in 16 months. Companies are reporting lower earnings and diminished outlooks for the rest of the fiscal year.

The recent events have deeply unnerved households, who are likely to remain cautious for the coming months, Schulz said.

"The nuclear disaster showed just how much is wrong in Japan actually," he said. "And many things that seemed so stable and sure like electricity supply ... are looking not safe at all."

Toyota Motor Corp., Japan's biggest automaker, said last week that its quarterly profit tumbled more than 75 percent because of parts shortages after the tsunami. As of May, the crisis cost the company production of 550,000 vehicles in Japan and another 350,000 overseas.

Toyota is expected to lose its spot as the world's top-selling automaker to General Motors Co. this year.

Even before the disaster, Japan's economy was struggling. The country lost its place as the world's No. 2 economy to China last year. It faced a slew of problems including years of deflation, a rapidly aging and shrinking population, and ballooning public debt.

Japanese companies increasingly relied on exports to drive growth and offset the persistently lackluster demand at home.

The first-quarter figure translates to a 0.9 percent fall from the previous three-month period, the Cabinet Office said.

Consumer spending, which accounts for some 60 percent of GDP, declined 0.6 percent. Capital investments by companies retreated 0.9 percent from the October-December quarter.

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