Japan’s business confidence hit a record low, a key survey showed on Wednesday, showing the depth of the recession in the world’s second-largest economy as world leaders gather in London to tackle the global financial crisis.

Slumping global demand has halved exports and slashed production of cars and electronics in Japan, pushing it into its worst recession since World War Two and leading to an atmosphere of almost uniform gloom among export-reliant manufacturers.

The Bank of Japan index gauging sentiment among major manufacturers slid to minus 58 in March, more than double the previous survey and the worst in a generation.

Underlining the corporate caution, capital expenditure figures were also the second lowest on record.

Rising unemployment and falling spending data a day earlier already showed the worrying trend that the slump in external demand was feeding into Japan’s domestic economy.

“The economy may reach a bottom in the summer but is not likely to return to previous levels of growth any time soon,” said Shinko Research Institute senior economist Norio Miyagawa.

Analysts expect Japan’s economy to keep shrinking in the first half of this year, meaning a record five straight quarters of contraction. Unpopular Japanese Prime Minister Taro Aso, facing an election by October, is preparing a third stimulus package to reinvigorate the economy.

U.S. President Barack Obama landed in London for the G20 meeting to address the worst global economic slowdown since the 1930s, which has already cost millions of jobs and trillions of dollars in government assistance.

He arrived on his first major overseas trip as president to a slew of bad economic news and with a fight looming with Europe over whether more stimulus or tighter regulation of financial markets was the way forward.

FAILURE NOT AN OPTION

Washington wants governments to pump more money into their economies but French President Nicolas Sarkozy is leading the regulatory charge.

“Failure is not an option, the world would not understand it and history would not forgive us for it,” Sarkozy said.

The plight of U.S. automakers was not far behind Obama after Washington forced General Motors’ chief executive to step aside this week and told GM and struggling Chrysler to come up with better restructuring plans or face bankruptcy.

GM warned on Tuesday there was a rising chance it could file for bankruptcy by June as it tries to cut its debt load, with the likelihood of more plant closings and job losses, sending its shares tumbling 28 percent.

U.S. stock futures fell during Asia trade on Wednesday and the yen rose after a Bloomberg report that Obama had decided that a prepackaged bankruptcy for GM was the best way for it to restructure. A senior administration official later called that report “inaccurate.”

Deepening the gloom, data on Wednesday is expected to show U.S. auto sales fell 40 percent in March from a year ago.

GM has been given another 60 days to come up with a way to become competitive again, while smaller rival Chrysler has been given a 30-day deadline to reach a deal with Italian carmaker Fiat SpA.

PESSIMISM

The pessimistic Japanese news was mirrored only hours earlier by the Organization for Economic Co-operation and Development, which said the world economy would shrink 4.3 percent this year, far worse than the 0.4 percent it had previously forecast.

That would cost 25 million jobs, about half of the worldwide job losses the International Labour Organisation is forecasting in the next year or so.

“The world economy is in the midst of its deepest and most synchronized recession in our lifetime,” the OECD said.

“We anticipate that the ongoing contraction in economic activity will worsen this year before a policy-induced recovery gradually builds momentum through 2010.”

Underscoring the human cost of the crisis that G20 leaders must address in London, Japan and Germany both announced big jumps in unemployment on Tuesday, while U.S. economic reports showed low consumer confidence and plunging home prices.

In Australia, retail sales slumped 2.0 percent in February — the most in nine years — raising fears of higher unemployment and pushing the case for yet another cut in already record-low interest rates, possibly next week, to keep Australia off the recession bandwagon.

There was some good news in Seoul, where the pace of decline in South Korean exports slowed and exports per day figures fuelled talk of the economy bottoming out and raised the case for the Bank of Korea to keep rates steady again next week.

(Additional reporting by Wayne Cole in SYDNEY, Yoo Choonsik in SEOUL, Kevin Krolicki and Soyoung Kim in WASHINGTON and DETROIT, and Brian Love in LONDON)