Japan’s economy unexpectedly slipped into recession in the third quarter, setting the stage for Japanese Prime Minister Shinzo Abe to delay an unpopular sales tax hike and call a snap election two years before he has to go to the polls.
The recession comes nearly two years after Abe returned to power promising to revive the economy with “Abenomics,” a mix of massive monetary stimulus, spending and reforms, and is unwelcome news for an already shaky global economy.
Japan’s GDP shrank by an annualized 1.6 percent in the July to September period, after plunging 7.3 percent in the second quarter following a rise in the national sales tax, which clobbered consumer spending.
Photo: Reuters
The world’s third-largest economy had been forecast to rebound by 2.1 percent, but consumption and exports remained weak, saddling companies with huge inventories to work off.
Abe had said he would look at the data when deciding whether to press ahead with a second increase in the sales tax to 10 percent in October next year, as part of a plan to curb Japan’s huge public debt, the worst among advanced nations.
“GDP figures for July-September turned out [to be] not so encouraging,” Abe said at a reception after returning from a week-long overseas tour.
“We are seizing a chance to exit long-lasting deflation and we cannot miss that chance,” he said, adding that he wanted to analyze the situation and then make a decision on the tax.
Media had already said Abe could announce his decision to delay the hike for 18 months as early as today and state his intention to call an election for parliament’s lower house.
Ruling party lawmakers expect the poll to be held on Dec. 14.
An adviser to Abe termed the economic slide “shocking” and urged the government to take steps to support the economy.
“This is absolutely not a situation in which we should be debating an increase in the consumption tax,” said Etsuro Honda, one of the architects of Abe’s reflationary policies.
Japanese Minister of State for Economic Revitalization Akira Amari said some economic stimulus was likely, but added that it would be hard to craft an exceptionally big package because of the need for fiscal discipline.
No election for the lower house need be held until late 2016, but political insiders say Abe wants to lock in his mandate while his ratings are relatively robust.
Next year, he is expected to push ahead with unpopular policies, such as restarting reactors that went off-line after the Fukushima Dai-ichi nuclear power plant crisis and a shift away from Japan’s post-war pacifism.
Facing a divided and weak opposition, Abe’s Liberal Democratic Party is expected to keep its majority in the lower house, but it could lose some seats.
A senior party lawmaker said he expected the prime minister to delay the tax hike and call a snap poll, saying that his “Abenomics” strategy to re-energize the economy was working, but needed more time.
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