Japan’s GDP plunges 12.7%

Japan’s economy contracted in the fourth quarter of 2008 at the fastest pace in 35 years as a collapse in global demand battered the world’s second-largest economy.

Japan’s gross domestic product, or the total value of goods and services, dropped at an annual pace of 12.7% in the October-December period, the government said today.

The result represents the steepest drop for Japan since the oil shock of 1974 and far outpaces declines of 3.8% in the U.S. and 1.2% in Europe. A survey of economists by the Kyodo news agency had projected an 11.6% contraction.

It also marks the third straight quarter of decline. In the July-September period, the nation’s GDP fell 1.8%.

With recovery nowhere in sight, Japan is now in its worst downturn since World War II, analysts say.

“Since October economic indicators have deteriorated at a pace that defies any rule of thumb,” Tetsufumi Yamakawa, chief Japan economist at Goldman Sachs, said in a recent report. “There has been an unprecedented large decline in exports and production-related indicators in particular, not only in Japan but throughout Asia.”

Japan’s real exports plummeted a record 13.9% in the fourth quarter, the government said, as the deepening global slowdown choked off demand for the country’s cars and electronic gadgets. An appreciating yen currency also hurt the country’s exporters, including Toyota Motor Corp. and Sony Corp.

The figures underscore the vulnerability of Asia’s export-driven economies during global downturns and point toward more cuts in jobs, production and profits in the coming months.