Tokyo - Amidst an unprecedented decline in exports, Japan's economy shrank drastically in the most recent quarter at an annualized rate of 12.7 per cent, the hardest drop in 35 years.

The government released the information as part of its initial estimate of Gross Domestic Product (GDP) growth between October and December 2008.

Exports dropped 13.9 per cent, pulled down by the global economic crisis and plunging demand for Japanese cars and electronics.

Firms like Toyota, Sony and Hitachi expect huge losses by the end of the fiscal year in March, and are eliminating thousands of jobs. As domestic demand has also dropped, the country was bracing for the worst recession of the post-war period.

For all of 2008, economic growth fell by 0.7 per cent, the first negative growth in nine years.

The Bank of Japan is projecting the harshest recession since World War II for the fiscal year beginning April 1, and is bracing for a 2- per-cent drop for the whole year. dpa