The Japanese economy shrank 1.2 per cent in the three months to December from the previous quarter as large firms slashed investment to survive a severe slump in global demand, the government said today.
Recession in the world's second-largest economy deepened to three straight quarters last year, marking the worst period of contraction on record.
Gross domestic product (GDP) fell 0.5 per cent in the three months to September and 1.2 per cent the previous quarter.
"We have to admit that the economic situation is in no way good," Chief Cabinet Secretary Mr Yasuo Fukuda told reporters.
For the full year to March, Japan would struggle to restrict its decline to an official government target of minus one per cent, warned Mr Heizo Takenaka, state minister for economic and fiscal policy.
GDP in the December quarter plunged 4.5 per cent on an annualised basis. The contraction was largely due to a 12 per cent slump in capital spending, the worst figure since comparable data began in 1980, reversing a 1.6 per cent rise in July-September.
In contrast, consumer spending grew 1.9 per cent from the previous quarter when it declined 1.7 per cent, as the public substituted domestic purchases for overseas travel after the September 11th terrorist attacks.
Japan's spluttering economy shrank 0.5 per cent in the 2001 calendar year, the first drop since 1998. Nominal GDP in 2001 fell 1.9 per cent from the previous year, the worse decline on record, indicating deflation was eating into the economy.