Japan’s recession was deeper than initially estimated as company investment unexpectedly shrank, a blow to Japanese Prime Minister Shinzo Abe as he campaigns for re-election on his economic credentials.
The economy contracted an annualized 1.9 percent in the July-to-September period from the previous quarter, weaker than the 1.6 percent drop reported in preliminary data. The result was also below every forecast in a Bloomberg News survey that showed a median 0.5 percent decrease.
The surprise decline in business investment sapped the strength of the world’s third-biggest economy, compounding damage from a slump in consumer spending after a sales-tax rise in April.
Photo: AFP
With the main opposition party caught unprepared, Abe is on track to win the Dec. 14 election, even as a decline in the yen cuts into the spending power of Japanese.
“Today’s report shows a pretty bleak picture of Japan’s economy,” NLI Research Institute director of economic research Taro Saito said. “We are going to see a recovery, but only a gradual one. The weakening yen should provide a boost to manufacturers and those benefits will penetrate through a wide range of industries.”
The economy is to grow an annualized 1.9 percent this quarter, according to the median estimate in a separate survey before yesterday’s data.
Economists raised forecasts for GDP earlier this month after Japanese Ministry of Finance data showed companies increasing investment in the July-to-September period. However, yesterday’s data showed private investment falling 0.4 percent from the previous three-month period, compared with the median estimate for 0.9 percent growth in the Bloomberg News survey.
Changes in inventories were also a bigger-than-expected drag, subtracting a more-than-forecast 0.6 percentage points from growth, the same as the initial report.
Private consumption rose 0.4 percent, unchanged from the initial report last month, following a 5.1 percent drop in the previous quarter, yesterday’s report showed.
The downward revision of GDP was due mainly to changes in capital spending and public investment, according to Japan’s Cabinet Office.
The downward revision to capital expenditure was partly due to differences in how the Ministry of Finance and the Cabinet Office calculate investment data, the Cabinet Office said. Yesterday’s revisions took in the finance ministry’s business survey data from last week.
After the initial report last month that Japan’s economy had contracted for two consecutive quarters, Abe announced he was delaying a sales-tax increase set for October next year by 18 months and ordered plans for economic stimulus.
The delay was cited by Moody’s Investors Service as a factor in its decision to cut its rating of Japan’s bonds by one level to “A1.”
“Weaker GDP figures provided a factor to justify Abe’s decision to delay a further sales-tax increase,” Sumitomo Mitsui Asset Management Co’s Hiroaki Muto said.
The government would probably compile a stimulus package to help the economy, and it may be about ￥3 trillion (US$25 billion), he said.
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