Postquake quarter's GDP fell at 1.3% rate

The economy shrank at an annualized rate of 1.3 percent in the three months through June amid the effects of the March earthquake and tsunami, which significantly slowed the nation's production and exports, the government said Monday.

The economy, as measured by real gross domestic product, contracted for the third straight quarter, which by definition indicates that the world's third-biggest economy has fallen into recession. But officials and private-sector analysts said the result does not warrant too pessimistic a view, as the fall was much smaller than expected.

The annualized GDP showed a slowing pace of decline, compared with a downwardly revised 3.6 percent fall in the previous quarter and 2.5 percent slide in the October-December period. It corresponded to a 0.3 percent fall from the first quarter, the Cabinet Office said in a preliminary report.

The latest readings were well above the average market forecasts in a Kyodo News survey that showed economists in think tanks and financial institutions had expected a 2.6 percent contraction in annualized terms and a 0.7 percent slide on a quarterly basis.

"Technically, the economy can be said to be entering a recession," said Masamichi Adachi, a senior economist at JPMorgan Securities Japan Co. But he added, "Considering the significant effects of the earthquake, I should say it was surprising that the contraction was of such a small scale."

Akihiro Morishige, economist at the Mitsubishi Research Institute, said the second-quarter result can be seen as evidence that "Japan's economic recovery has been brought forward for a few months, compared with our initial estimates" amid upturns in industrial output and household spending.

Private consumption, which makes up about 60 percent of GDP, declined 0.1 percent, a better reading than the 0.6 percent fall in the previous quarter, amid signs of improving consumer sentiment, which had been damaged by the March 11 disaster.

Robust sales of flat-panel televisions and other durable goods, as well as of summer clothes, seemed to have offset sluggishness in food sales and services sector performances, a government official said.

Exports dropped 4.9 percent, the sharpest fall since the first quarter in 2009, when they shrank 25.3 percent on the worldwide economic downturn in the aftermath of the bankruptcy of U.S. investment bank Lehman Brothers Holdings Inc. the previous year.

The weak exports, notable in such key sectors as carmakers and electronics manufacturers, resulted from the recent strength of the yen, slowdown in overseas economies and slump in domestic production due to the natural disaster, which disrupted nationwide supply chains for key components, the official said.

Domestic demand pushed real, or inflation-adjusted, GDP higher by 0.4 percentage point.

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