Japan’s recession was deeper than initially estimated, a blow to Prime Minister Shinzo Abe as he campaigns for re-election on his economic credentials.
The economy shrank an annualized 1.9 percent in the July to September period from the previous quarter, weaker than a preliminary projection for a 1.6 percent contraction. The result was below every forecast in a Bloomberg News survey that showed a median 0.5 percent decrease.
Weaker-than-expected business investment sapped the world’s third-biggest economy, compounding damage from a slump in consumer spending after a sales-tax rise in April. 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 people’s spending power.
“Today’s report shows a pretty bleak picture of Japan’s economy,” said Taro Saito, director of economic research at NLI Research Institute in Tokyo. “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 will grow an annualized 1.9 percent this quarter, according to the median estimate in a separate survey before Monday’s data.
The Topix index of stocks was up 0.5 percent at 9.34 a.m. in Tokyo, buoyed by a decline in the yen to a seven-year low. The currency traded at 121.63 per dollar, down 0.1 percent.
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 2015 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.
The downward revision of gross domestic product was mainly due to capital spending and public investment, according to Saito. Private investment fell 0.4 percent in the quarter from the previous three-month period, when it dropped 4.7 percent. Private consumption rose 0.4 percent, following a 5.1 percent drop in the second quarter, Monday’s report showed.
© Copyright 2023 Bloomberg News. All rights reserved.