Japan recession deepens as factory output drops

Japan said that factory output fell sharply as the recession deepened in the world's second largest economy, with export markets shrinking during the global downturn.

Just weeks after the government said the economy saw its worst contraction in 35 years in the last quarter of last year, the new figures underlined the scope of the crisis as Japan struggles with weakening demand for its goods abroad.

The numbers also came a day after General Motors and the Royal Bank of Scotland posted massive losses, and Germany and the US both announced increases in unemployment as the worldwide slowdown intensifies.

Japan said factory output, the measure of how many goods manufacturers are making, was down a record 10 per cent in January, with the downturn denting demand for cars, televisions and other goods in its key export markets, Europe and the US.

"The recession is further affecting the real economy," said Japanese Finance Minister Kaoru Yosano.

Japanese household spending was meanwhile down 5.9 per cent in January, with consumers increasingly cautious in the face of a crisis that shows no immediate sign of letting up.

Governments around the world have been trying with limited success to stimulate their economies, and new US President Barack Obama on Thursday delivered his first budget - with a massive $3.55-trillion price tag.

The budget includes an optimistic forecast that the economy will post robust growth next year, projecting a 1.2 per cent contraction in calendar 2009 but an expansion of 3.2 per cent in 2010.

But virtually every day has brought new signs of gloom for the global economy, with banks and companies losing fortunes, and some of the biggest international corporate names looking for government money to stay afloat.

Royal Bank of Scotland posted a loss of £24.1 billion on Thursday, Britain's biggest ever corporate loss.

The British government agreed to insure "toxic" assets of the bank worth £325 billion, and will cover 90 per cent of losses stemming from such holdings.