Japan Economy Shrinks More-Than-Forecast 3.7% After Record Quake, Tsunami

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Japan’s economy shrank more than estimated after the March 11 earthquake and tsunami

As reported by Bloomberg’s Keiko Ujikane:

Japan’s economy shrank more than estimated in the first quarter after the March 11 earthquake and tsunami disrupted production and prompted consumers to cut back spending, sending the nation to its third recession in a decade.

Gross domestic product contracted an annualized 3.7 percent in the three months through March, following a revised 3 percent drop in the previous quarter, the Cabinet Office said today in Tokyo. The median forecast of 23 economists surveyed by Bloomberg News was for a 1.9 percent drop.

The March disaster hit an economy already weighed down by years of deflation and subdued consumer spending, and slashed profits at companies including Toyota Motor Corp. as factories were shut. The economy, now the smallest size since 1991 unadjusted for price changes, may shrink further this quarter before rebounding later in 2011 as reconstruction kicks in.

“The contraction in the second quarter will probably be even bigger as consumer spending and exports slump,” said Norio Miyagawa, senior economist at Mizuho Securities Research and Consulting Co. in Tokyo. “The economy will likely return to growth from the third quarter once the supply-chain disruption eases and reconstruction work begins.”

The Nikkei 225 (NKY) Stock Average fell 0.4 percent today on the worse-than-expected GDP data. The Nikkei has lost 8 percent since the quake and tsunami, which left more than 24,000 dead or missing. The yen traded at 81.70 against the dollar at 3:48 p.m. in Tokyo, compared with 81.69 before the report was published.

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