Japan’s economy shrank at a faster pace than first estimated as a COVID-19 state of emergency sapped private consumption- which makes up more than half of gross domestic product- and a global chip crunch hit car exports, government data showed.
Gross domestic product (GDP) contracted an annualized 3.6% in the three months through September, revised figures from the Cabinet Office showed Wednesday (Dec. 8), worse than the preliminary reading of a 3.0% contraction. Economists had expected a 3.1% overall slide, following the 2.0% increase in the second quarter.
The new data equals a real quarter-on-quarter contraction of 0.9% from the prior quarter, also missing forecasts for a drop of 0.8% versus a preliminary 0.8 percent drop.
The faster decline was mainly due to a larger fall in private consumption which slid 1.3%, downgraded from a 1.1% fall. During most of the reporting quarter, people curtailed travel and dining out in Tokyo, Osaka and other prefectures, as they were requested to refrain from unnecessary outings. Restaurants and bars were asked to close earlier and not to serve alcohol.
In household spending, expenditure on durable goods fell 16.3% from the previous quarter, marking the largest fall since comparable data became available in 1994. Public investment was also revised down to a 2.0% drop from a 1.5% decline.
Capital expenditure decreased 2.3% on quarter, exceeding expectations for a decline of 3.9% after rising a revised 2.2% in the previous quarter. The country’s exports declined 0.9% while imports fell 1.0%, both upgraded from a 2.1% drop and a 2.7% dip, respectively.
The GDP downgrade, which took into account a change in the way seasonal adjustments were calculated, comes after data on Tuesday (Dec. 7) showed household spending fell for a third straight month in October.
Since coronavirus struck, Japan’s government has sought to support the world’s third largest economy by large-scale fiscal spending. Last year, former prime ministers Yoshihide Suga and Shinzo Abe poured 40 trillion yen and 38 trillion yen respectively into the economy. Last month, the new Prime Minister Fumio Kishida unveiled a record $490 billion spending package. Looking forward, many analysts expect Japan’s economy to recover.
“We expect the stimulus package to boost Japan’s GDP by around 2 percent, by pushing up private consumption, government spending and public investments,” Wakaba Kobayashi, an economist at Daiwa Institute of Research told The Asahi Shimbun.
The virus emergency was ended nationwide on Oct. 1, easing restrictions on economic and social activities. Other economists are skeptical about the stimulus impact on growth near-term.
Japanese firms still face risks from higher commodity costs and supply bottlenecks. The country’s heavy dependence on the auto industry meant its economy was more vulnerable to trade disruptions than other countries.
Japan already has an enormous public debt load, amounting to over 250% of GDP and is the highest of any developed nation. 45% of this debt is held by the Bank of Japan.
Japanese shares ended sharply higher on Wednesday (Dec. 8) as gains in technology shares following an overnight climb of their U.S. counterparts helped offset GDP data. The Nikkei 225 Index closed up 1.4% while the broader Topix advanced 0.6%.
With reporting by Kyodo News, Mainichi, The Asahi Shimbun