Japan's Longest Postwar Economic Recovery Over

Government says economy may already be in a recession.

Japan said on August 7 its longest economic recovery since World War II appears to have come to an end, as fears of a recession in Asia's largest economy add to a darkening global outlook. The prospect of a Japanese downturn comes as concerns mount that the eurozone economy could also be heading into a recession, with the fallout from the U.S. financial crisis spreading around the globe.

"Along with weak data from Europe, evidence of a weakening global economy is becoming much more tangible," noted Societe Generale's chief Asia economist, Glenn Maguire. Japan's economy "is weakening recently," the government said in a monthly report, dropping the word "recovery" from its assessment of the world's second largest economy for the first time in four years and eight months. Depending on developments in the U.S. economy, global financial markets and oil prices, there is a risk the economy could weaken further, it warned.

"It is possible that the economy may already be in a recession," a Cabinet Office official said.

The two drivers of Japan's economic recovery -- exports and business investment -- have both lost steam, while inflation has accelerated to a decade-high, threatening to dampen already tepid consumer spending. "The Japanese economy is entering a phase where we cannot necessarily remain optimistic," said Japan's economic and fiscal policy minister, Kaoru Yosano.

Japan's economy has enjoyed a gradual recovery in recent years from recession in the 1990s, but is now being pressured by a worsening global economic climate and soaring commodity costs. Analysts expect figures due next week to show Asia's largest economy contracted in the second quarter of 2008. A recession is defined as two consecutive quarters of negative growth.

The last time the Japanese economy shrank was in the second quarter of 2007, and many economists think it is again in a recession-like state.

Earlier in the day the government reported that core machinery orders dropped 2.6% in June from the previous month, declining for a third straight month. For the April-June period, core machinery orders edged up 0.6% from the previous quarter, but are forecast to dip 3% in July-September, the Cabinet Office said.

Foreign demand also fell for the first time in three months, a major negative factor for an economy heavily dependent on exports, he said. "It is inevitable that Japan's machinery exports are sagging due to economic slowdowns in the U.S. and the EU," said Watanabe.

Copyright Agence France-Presse, 2008

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