Japan may sink into recession, say analysts

Analysts are almost unanimous in suggesting that Japan's gross domestic product (GDP) will fall in the current quarter while some economists even see the chance of the country slipping into recession in the first quarter of the next year.

"GDP will almost certainly fall in the current quarter but we are increasingly concerned that it may drop further in the first three months of 2011 as well, meaning that Japan will technically be in recession again," Julian Jessop, an economist with Capital Economics, wrote in a note on Monday.

An economy is said to be in recession when it has two successive quarters where GDP declines relative to the previous quarter.

Consumer spending weakened sharply in September as government incentives for car purchases expired. There was only limited recovery in October figures, while the future outlook remains even bleaker. "For a start, following the scaling back of the ecopoints scheme, consumer spending appears to be ending the fourth quarter on almost as low a note as it did the third," Jessop says.

Monthly data on machinery orders and housing starts point to sluggish investment spending and there is continued weakness in the exports sector. Jessop says there is growing evidence that this weakness will carry over into the first quarter of 2011 as well.

Retailers are reporting a sharp drop-off in sales this month after the subsidies for energy-saving consumer appliances, including flat screen TVs, air conditioners and refrigerators, were halved.