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Canberra Times | Japan, one of the biggest victims of the global economic downturn, may also be one of the first countries to exit recession as its stricken export engine splutters back to life, analysts say.

(photo: AP / Shizuo Kambayashi)

But prospects for a full recovery from the country's worst slump since World War II appear dim given weak consumer spending and the slim chances of a dramatic improvement in overseas demand.

Japan's economy began shrinking in the second quarter of 2007 and suffered a brutal annual contraction of 12.1 per cent in the last three months of 2008 as exports crashed. Analysts say this year's first quarter could be even worse.

But Julian Jessop, of Capital Economics in London, said the economy looked set to grow slightly in the second quarter, ''which may well mean that Japan will be the first major developed economy to return to quarterly growth''.

Recent data sparked hope that the slump in the world's second-biggest economy may be easing, with exports showing signs of bottoming out and machinery orders unexpectedly rebounding.

Macquarie Securities economist Richard Jerram said in terms of when the economy would return to positive growth, it seemed Japan would be relatively early on seeing an economic turning point.

''The return to persistent deflation is likely to mean that a normalisation of the economy will be dependent on a boost from the export sector,'' he said.

The International Monetary Fund forecast last week Asia's biggest economy would grow 0.5 per cent in 2010, outperforming the United States and most of Europe, after a 6.2 per cent contraction in 2009 the worst among major industrialised nations. Unlike the US or some European countries, Japan's downturn was caused almost entirely by a fall in demand for its exports.

As consumers in Western markets stopped buying Japanese cars, televisions and other goods, corporate giants such as Toyota and Sony slashed their production. Production is now expected to creep back up in the coming months, even if it remains much lower than a year ago, as Japan benefits from an emerging economic recovery in China, its largest trading partner.

Morgan Stanley economist Takehiro Sato said data due out this week was expected to show that factory output in Japan rebounded for the first time in six months in March. ''The problem is whether such a recovery can extend into the second half.'' AFP