This article is more than 9 years old

This article is more than 9 years old

Japan's factory production and consumer spending both suffered record falls in March as the earthquake, tsunami and nuclear disasters sent the country's halting economic recovery into reverse.

The government said on Thursday that industrial production had plunged 15.3% from February after the 11 March earthquake and tsunami devastated Japan's industrial north-east, crippled a nuclear power station that continues to leak radiation and caused widespread power shortages.

Factory production had been expected to fall sharply as a result, but the drop was worse than the forecast of an 11.4% decline in a Kyodo News survey of analysts.

The disasters, which killed about 25,000 people, destroyed many factories, causing a severe shortage of parts and components for manufacturers across the Japanese economy but especially for carmakers.

Manufacturers including Toyota and Sony were forced to suspend production amid the supply crunch and power outages.

Transport equipment recorded the sharpest production drop – a 46.4% decline – underscoring the north-east region's integral role in supplying Japan's auto industry with parts, graphics chips and other high-end components.

The Japan Automobile Manufacturers Association said vehicle production fell 57.3% in March from a year earlier to 404,039 vehicles.

The ministry of economy, trade and industry said the country's industrial production would recover "gradually", forecasting a 3.9% improvement in April and a 2.7% rise in May.

But Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo, said the government's forecast was probably overly optimistic.

Even if it held true, it would be months before production reached its already depressed pre-disaster level, he said, adding: "This is a frustrating outlook."

Ministry officials said the March decline in the country's index of output at factories and mines was the greatest since record-keeping began in 1953. The previous largest decline was in February 2009, when the global financial crisis that had started a few months earlier dragged production down 8.6%.

Prime minister Naoto Kan has said he hopes disaster-recovery spending will help lift Japan out of its 20-year economic decline. China last year overtook Japan to become the world's second-biggest economy.

The government proposed a special $50bn (£30bn) budget last week to help finance rebuilding efforts, which officials said would likely be only the first instalment of reconstruction funding.

Japan's central bank, meanwhile, said it was keeping its key interest rate unchanged at zero to 0.1% in an attempt to support economic growth after the disasters.

The Bank of Japan has pumped billions of dollars into the financial system to stabilise the economy since the quake.

Consumers not spending

In another report on Thursday, the government's statistics bureau announced that consumer spending had also seen a record decline in March, falling 8.5% from a year earlier.

The previous sharpest decline in the numbers, which have been tracked since 1963, was a 7.2% dip in February 1974, soon after the 1970s oil shock helped trigger a worldwide stock market crash.

Goldman Sachs global economics analyst Norihiko Baba said in a report that a decline of 4% to 5% had been expected, since spending in March 2010 was especially robust due to tax breaks and discounts available at the time on energy-saving cars and appliances.

The much larger drop implied that the disasters were having a "strong impact" on spending, Baba said.

Kan has urged Japanese consumers to open their wallets to help spur the economy, stressing that the upcoming Golden Week holidays will be a particularly good opportunity to spend.

But Schulz said consumers were unlikely to be in a spending mood amid the out-of-service elevators, dimmed lights and other power-saving reminders of the nuclear energy crisis set off by the disasters.

"Households in Japan, after this shock and seeing that the crisis is ongoing, will simply not go out and buy a new car or anything this year," he said.

Separately, the government said the nation's unemployment rate was unchanged in March from February at 4.6%, but the survey excluded the three prefectures hardest hit by the disasters.

The seasonally adjusted figure was better than Kyodo News's average market forecast of 4.8%. It was the ninth consecutive month of steady improvements in the nation's employment picture.

Schulz said the surprisingly upbeat jobs numbers were probably linked to employers' need to keep workers on their payrolls to help restore damaged supply lines.

But he predicted a sharp downturn in those figures, as the drop-off in consumer spending translates into fewer jobs at hotels, restaurants and shops in Japan's massive service sector.

The government also reported that consumer prices declined for the 25th straight month. The key consumer prices index fell 0.1% as deflation continued to weigh on the economy.