updated 8/16/2009 10:04:47 PM ET 2009-08-17T02:04:47

Japan's economy grew 3.7 percent at an annual pace in the second quarter, signaling exports were gradually picking up after the nation's worst recession since the end of World War II, the government said Monday.

The rebound in April-June came after the world's second-largest economy contracted for four consecutive quarters, as consumer spending inched up and exports surged in cars, video recorders and other electronics goods, Kingo Toyoda of the Cabinet Office said.

Japan had sunk to its worst ever quarterly contraction in the October-December quarter, when its gross domestic product, or the value of a nation's goods and services, shrank at an annual pace of 13.1 percent.

But Japanese manufacturers have benefited from recovering demand in China and other emerging markets. Government stimulus measures have also helped, such as cash handouts and incentives to boost the purchase of ecological products.

Exports grew 6.3 percent quarter-on-quarter, marking the highest growth since April-June 2002 when Japanese shipments expanded 6.4 percent.

Economists warned that the recovery could quickly run out of steam because salaries were plunging in the fallout from the economic woes that have battered this nation since the global financial crisis. The lift in spending from ecological incentives also aren't expected to last for long.

During the quarter through June 30, compensation for employees dipped 1.7 percent, the data show, while consumer spending edged up a weak 0.8 percent.

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

Compared to the previous quarter, the world's second-largest economy expanded 0.9 percent in April-June from the previous quarter, according to Cabinet Office data. If that rate were maintained for a full year, Japan's economy would grow 3.7 percent.

Economy and fiscal policy minister Yoshimasa Hayashi warned that "risk factors" remain, including high unemployment and sluggish production, Kyodo News reported.

"Although still in a tough environment, the economy has been recovering," he was quoted as saying.

The Economic Planning Association, a government-affiliated group of economists, had forecast a 3.0 percent annual rate of growth for the April-June quarter.

Japan's housing investment continued to lag in that period, plunging 9.5 percent on quarter, the government said.

Also Monday, the government said in revised data that the economy had slid 3.2 percent in the fiscal year through March 31, following 1.8 percent growth in the previous fiscal year, ending March 2008.

Export-dependent Japan has been hit hard by the recent plunge in global demand. Major companies such as Toyota Motor Corp. and Sony Corp. have cut thousands of jobs and suspended factory lines. The jobless rate hit 5.4 percent in June, a six-year high.

Up to the early part of last year, Japan had been eking out moderate growth in between periods of slight contractions, as it slowly emerged from a decade-long stagnation.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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