TOPICS > Economy

Japanese Economy Pulls Out of Recession

BY Tom LeGro  August 17, 2009 at 10:34 AM EDT

People walk by a Nikkei-225 board in Tokyo; photo by Kazuhiro Nogi/AFP/Getty Images

For Japan, the world’s second-largest economy, it was longest recession since World War II.

Economists and politicians sounded cautious, however, noting that the main driver of growth was exports and short-term stimulus efforts around the world and that domestic consumer spending remained fragile amid falling incomes and rising unemployment.

The growth was mostly in line with forecasts and added to evidence that Japan was clawing back after being the hardest hit among the major economies due to its reliance on exports.

Last week, France and Germany, Europe’s two biggest economies, said they resumed growing in the second quarter, while Hong Kong also said it expanded after a yearlong recession.

Japan’s recovery in the April-June quarter was driven by robust demand for cars, video recorders and other electronics goods, according to government data. Exports grew 6.3 percent from the previous quarter, the highest rate in seven years.

But economists said the recovery could quickly run out of steam because domestic demand remains weak. Salaries are falling and the unemployment rate has risen to a six-year high of 5.4 percent as companies such as Toyota Motor Corp. and Sony Corp. have cut thousands of jobs.

“Production is still at a low level, and worries remain that employment conditions will worsen. So we must watch the downside risks,” fiscal policy minister Yoshimasa Hayashi said on nationally televised news.

“When you look at the numbers, the contrast between external demand and internal demand is as clear as night and day,” Hiroshi Watanabe, an economist with Daiwa Institute of Research in Tokyo, told the Associated Press. “With payments falling, it’s really hard to expect individual spending to hold up.”

Japanese Prime Minister Taro Aso, in a debate with rival party leaders on Monday, touted the positive figures as the result of his government’s efforts, but acknowledged that ordinary citizens might not yet feel the effect.