Japan economy shrinks 2.5% in 3Q on capex fall

TOKYO • Japan’s economy contracted more than initially projected in the third quarter (3Q), driven by the biggest drop in business spending in nine years amid a series of natural disasters. Growth is expected to recover in the current quarter and continue into next year, but trade tensions and a slowdown in China are major risks.

Japan’s GDP shrank an annualised 2.5% in the three months through September, the largest fall in more than four years, the Cabinet Office said yesterday. That compares to an initial reading of -1.2%, and economists’ median estimate of -2%.

Exports and related business investment have been key growth drivers for Japan in recent quarters. The weakness in capital expenditure (capex) followed the biggest rise in three years in the previous quarter and economic expansion is thought to have now resumed.

Yet, there are still concerns that the US-China trade war and slowing growth overseas, especially in China, will damp Japanese corporate sentiment.

The effect of the natural disasters on GDP was “quite significant”, but it’s too early to draw any big-picture conclusions from the fall in capex given that the increase in the previous quarter was so strong, said an economist.

“I do see exports and production getting weaker, and the economic growth trend is tilted toward weakness.”

“The good news is that 3Q is now well in the rear-view mirror. We think GDP is bouncing back this quarter,” said Bloomberg Economics. Bloomberg