Japan's gross domestic product (GDP) contracted by an annualized 12.7 percent in the October-December quarter of 2008, the fastest pace in about 35 years as the global financial crisis took a heavy toll on the world's second largest economy, said a government report on Monday.

It was the sharpest decrease in the country's economy since the first quarter of 1974 when its GDP suffered a decline of 3.4 percent, or an annualized 13.1 percent, due to the fallout of the first oil crisis, said the Cabinet Office in a preliminary report.

"Plunges in external demand mainly pulled the GDP down. Japanese exports were hurt by the rapid deceleration of the world economy and the yen's appreciation" relative to other major currencies, an official from the Cabinet Office was quoted as saying.

Economic and Fiscal Policy Minister Kaoru Yosano said that Japan is faced with "the worst economic crisis" since World War II.

Meanwhile, the nation's economy shrank for three quarters in a row, the first time in seven years, it said.

In 2008, Japan's GDP witnessed the first downturn in nine years, contracting by 0.7 percent.

Consumer spending, which accounts for about 55 percent of Japan 's GDP, saw a 0.4 percent quarter-on-quarter fall in real terms while corporate capital spending, a main driver of Japan's six- year economic recovery since 2002, dropped 5.3 percent.

Exports tumbled at the fastest ever pace of 13.9 percent due to the sharp appreciation of the yen amid the global economic recession, and imports, on the other hand, expanded 2.9 percent.

In nominal terms, Japan's economy shrank 1.7 percent quarter-on- quarter, or 6.6 percent on an annualized basis, in the October- December period.

In light of the latest data, the Cabinet Office predicted that Japan would meet its projection of 0.8 percent real negative growth for fiscal 2008 if real GDP grows 5.6 percent, or an annualized 24.2 percent, in the January-March quarter.

GDP is the total market value of the goods and services produced domestically during a specific period of time. Real GDP figures are adjusted for changes in the value of money or assessed by purchasing power.

(Xinhua News Agency February 16, 2009)