In the first quarter of 2011, GDP dropped by 3.7% on a yearly basis, nearly double the forecast after the tsunami. Domestic consumption plummets, in addition to exports. The government is confident in a speedy economic recovery through rebuilding, but experts are cautious.

Tokyo (AsiaNews / Agencies) - The Tokyo Stock Exchange slipped by 0.11% this morning, after the government announced that the country is in recession, with a loss of 0.9 in the first quarter 2011 (3.7% on an annual basis). The loss was expected, as a result of the disastrous earthquake and tsunami of March, but it is almost twice the expected 2% (year on year).

The gross domestic product of the third world economy lost 0.9% in the quarter, after it already had the contract for the period October to December 2010. Both domestic consumption and exports are down. The most important data is the decrease of 0.6% in household consumption, which constitutes about 60% of Japan's economy. Beyond the obvious contraction caused by the earthquake, it is noted that, according to data from the Cabinet, consumer confidence in economic recovery decreased by 33.1% in April. The fall in investments, -0.9% in the quarter, was the first decline in six quarters.

The tsunami also destroyed the country's exports (leading companies such as Toyota had important plants in the zones affected by the disaster), whereas it increased the cost of imported products, including the general increase in raw materials. The country's trade surplus fell 34.3% in March compared to March 2010.

Nohirito Fujito, an expert from Mitsubishi UFJ Morgan Stanley, said: "The market is expecting a recovery in V [a kind of rebound-effect], but today's figures [of GDP] raise doubts that the descent will continue."

Economy Minister Kaoru Yosano also expects the economy to remain weak for some time, but is confident that this is only a "temporary phenomenon" and that the recovery in consumption once the emergency is over and reconstruction will soon help growth resume.

Experts predict that the reconstruction will drag the economy back up not before the end of the year.

It is expected that the Prime Minister Naoto Kan will announce extraordinary public funding for reconstruction, after the parliament approved funding for 4 trillion yen (about 49 billion dollars) in May. The Government has estimated the damage from the March disaster will amount to 25 thousand billion yen.

Morio Miyagawa, economist at Mizuho Securities Research, expects "an even greater contraction in the 2nd quarter of 2011, as spending on consumption and exports will fall," but agrees that in the 3rd quarter economic recovery will begin "when the immediate needs of the disaster are less and the reconstruction has begun".

In the coming days the Central Bank of Japan is also expected to maintain the current cost of borrowing low, with interest rates between 0% and 0.1%, to encourage investment.

• Japan
• economy
• disaster
• earthquake
• tsunami
• recovery
• estimates