Japan suffers record fall in industrial output
Asian economies showed more signs that recession is deepening across the world with Japan's industrial output falling at a record pace and South Korea warning it faces an "unprecedented crisis".
The once unstoppable Chinese economy is also feeling the strain, with companies recording a sharp slowdown in profit growth in the first 11 months of the year.
Japan's industrial output marked a record fall last month, figures out showed, raising fears that the world's second-biggest economy is ÂÂsliding towards deflation.
Manufacturing output sank by 8.1% in November, the government said, the biggest drop since records began in 1953. The ministry of economy, trade and industry estimates output will decline by a similar amount this month and by more than 2% in January. If the forecasts are right, output for the three months to December will shrink by a record 11%.
The previous record monthly drop, of 4.3% in January 2001, came as Japan was struggling to drag itself out of a deflationary spiral.
The figures suggest Japan's export-dependent economy is contracting faster than previously feared and comes amid warnings that deflation is looming for the second time in less than a decade. Sharp falls in the price of oil and other commodities slowed price rises to a meager 1% from a year earlier, compared with 1.9% in October.
Unemployment rose to 3.9%, up 0.2% from the previous month, with the overall jobless rate reaching more than 2.5 million, an increase of 100,000 from last year, the health and welfare ministry said.
Japan's exporters have seen their profits quickly eroded by the soaring yen–now hovering around a 13-year high against the dollar–and a dramatic decline in sales in the US and Europe.
The downturn has forced the country's powerhouse car and electronics makers to slash production and cut work forces, with Toyota announcing its first ever loss this week. The labor ministry said 85,000 temporary and part-time workers would lose their jobs by the end of March, well over double the number forecast last month.
Households are tightening their belts amid rising uncertainty over jobs, with spending falling 0.5% in November.
The government has unveiled financial stimulus packages that include 12tn yen (£90bn) in extra spending, and this week proposed a record ¥88.5tn budget in an attempt to prevent the economy from collapse.
Having taken interest rates to almost zero last week Japan's financial authorities appear to be running out of options.
The Bank of Japan recently cut interest rates by 0.2% to 0.1% as central banks around the world moved to ease credit. The BoJ also increased its outright purchases of government bonds and, for the first time, said it would buy commercial paper outright in an attempt to ease the pressure on cash-strapped firms.
The prime minister, Taro Aso, described the turmoil as a "financial tsunami".
"We need to take unprecedented measures when in an extraordinary economic situation," he told reporters. "Japan cannot evade this tsunami, but by taking bold measures we hope to be the first in the world to come out of recession."
Analysts said production had "fallen off a cliff" and were pessimistic about the prospects for an early recovery. "What's going on is beyond what Toyota and Sony ever imagined," said Mitsuru Saito, chief economist at Tokai Tokyo SecÂurities.
The mood was similarly grim in South Korea. "The Korean economy is faced with an unprecedented crisis with exports and domestic demand, the two pillars of economic growth, falling at the same time," the ministry of knowledge economy said in a new year policy report.
The ministry said it would aim to boost 2009 exports to $450 billion from about $430 billion projected for this year.
Faced with slowing demand from export markets, China needed to take more steps to stimulate domestic consumption, central bank officials there said. China's over-reliance on investment and exports has been exposed by the global financial crisis.
Profit growth at Chinese industrial firms rose 4.9% in January-November from a year earlier, down sharply from annual growth of 19.4% in the first eight months of the year, data on Fritoday showed. But Yi Gang, a deputy governor of the People's Bank of China, reiterated his confidence that the economy would find a bottom around the second quarter of next year.
"I am confident about China's growth next year," he said. "Growth will be relatively stable at about 8%. And inflation will be low."