Asia's largest economies showed stark new evidence yesterday of contagion from the global financial crisis as China reported its slowest growth in seven years and Japan's central bank admitted it faces two years of contraction and deflation.

The Bank of Japan sharply reduced its forecasts for the economy for this fiscal year and next, while government figures showed that Japanese exports plunged a record 35 per cent in December. Adding to the gloom in the region, South Korea unveiled its first year-on-year decline in quarterly economic growth since the Asian financial crisis more than a decade ago, while unemployment in Taiwan rose to a five-year high.