Japan's economy contracts 2.5 pct in 3Q on weaker spending

Japan's economy shrank at a worse than anticipated annualized rate of 2.5 percent in July-September due to weaker consumer demand and corporate investment.

The revised figure released Monday was more than double the 1.2 percent contraction reported earlier. Economists say the setback for the world's third-largest economy is likely temporary.

The data from the Cabinet Office shows the seasonally adjusted gross domestic product — the total value of a nation's goods and services — dipped 0.6 percent in the third quarter from the previous quarter.

Japan's economy returned to expansion in the April-June quarter but contracted in the quarter before that. That contraction ended the longest straight period of expansion for Japan in nearly three decades.

Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities in Tokyo, said the new data requires a revision of assessments about economic growth and investment.

"But the overall trend of economic growth continues," he said in a report, noting that recent natural disasters had crimped growth.

Natural disasters weighed on consumer travel and spending, which means growth could recover if such events don't occur during the year's final quarter.

The closure of a major airport in the western Kansai area after a typhoon was among the factors that hurt in the third quarter. A major earthquake also hit the northernmost island of Hokkaido during the quarter, causing deadly landslides and widespread blackouts.

Until recently, Japan had been experiencing moderate growth under Prime Minister Shinzo Abe's "Abenomics" policies based on a deflation-fighting stimulus program of cheap lending. The nation's continuing labor shortage and slow wage growth are also taking a toll.

Uncertainty over the outlook for exports is another concern, since Japanese companies face direct effects of trade friction with the U.S. and indirect impacts as suppliers to Chinese manufacturers hit by tariffs on Chinese goods exported to the U.S.

Abe's attempts to help women join the workforce are showing only gradual results. Parliament passed a law over the weekend allowing more immigrant workers into Japan starting in April.

Convincing Japanese companies to invest more, both in hiring and in other areas, would be key to long-term sustainable growth but has proven elusive in a market where demand is expected to shrink in the long term as the population ages and shrinks.

Stefan Angrick of Oxford Economics said he still expects the slowdown to be temporary, and is "cautiously optimistic" about domestic demand.

"Nonetheless, today's outcome does suggest some downside risks to our 2018 GDP growth forecast of 1 percent and may indicate that the investment cycle is close to peaking," he said in a commentary.


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