Japan stands on the brink of its first recession in six years as falling exports, investment and consumer spending combined to contract the world's second biggest economy.

Reflecting the turmoil in other leading economies, Japan’s gross domestic product (GDP) shrank by 0.6 per cent in the three months to June 30.

It was the biggest quarterly decline since September 2001, when Japan was last in recession after the internet stock bubble burst.

The Japanese economy shrank by 2.4 per cent on an annualised basis.

A second consecutive quarter of contraction will put the nation officially in recession, bringing back memories of the series of short slowdowns it suffered throughout the 1990s when Japan's wary consumers refused to spend.

A downturn in consumer spending, which aaccounts for half of Japan's economy, was again key in knocking back growth.

Household spending fell 0.5 per cent as soaring commodity and food prices in the quarter, coupled with sluggish wages, prompted consumers to tighten their purse strings.

Housing investment unexpectedly fell, knocking real-estate companies and property developers listed on the Nikkei, amid overall falls of 2.1 per cent today.

Exports tumbled by 2.3 per cent as the slowdown in global growth took hold in the period.

Toyota, the industrial bellwether of the Japanese economy, reported last week that its profits in the same period had dipped 28 per cent as US and European markets languish amid high petrol prices.

Overall, Japan’s current account surplus plunged 67.4 per cent in June from a year earlier to 493.9 billion yen (£2.38 billion) as exports to the US and Europe fell.

Business investment was another weak spot, dropping 0.2 per cent as cautious companies spent less on new equipment and factories.

Economists said rising fuel prices and their effect on overall inflation had led Japanese consumers to curtail spending in the quarter.

“The increase in oil and commodity prices is damaging corporate profits, while rising inflation is hurting households," said Mamoru Yamazaki, chief economist for Japan at RBS Securities.

Economists at Lehman Brothers said the economy was much better placed to deal with recession than in the 1990s. “The downside risks remain elevated, but we expect that this cyclical downturn will be a relatively mild one," they said.

Japan is not the only major industrialised nation to have suffered an economic contraction this year — Canada’s economy shrank in the first quarter and Italy suffered negative growth in the second quarter.

The US economy also shrank slightly in the fourth quarter last year but has since been bolstered by stimulus measures.

Explore Economics

• Pre-Budget Report 2008

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive