(Bloomberg) -- Japan’s economy shrank less than initially estimated in the three months through September, though downside risks are still weighing on Japan’s path to a solid recovery.
Gross domestic product contracted an annualized 0.8% in the third quarter from the previous period, a smaller fall than a preliminary reading of -1.2%, revised figures from the Cabinet Office showed Thursday. Economists had expected a 1% decrease, while noting possible distortions due to adjustments to past figures.
The upward revision was partly driven by stronger-than-first estimated growth in exports and a build up of inventories. Capital expenditure remained firm but wasn’t revised up in the way expected by analysts ahead of the release.
However, the figures also showed that spending by consumers was weaker during the Covid-hit summer than initially thought.
Economists expect the Japanese economy to begin growing again in the current quarter, pushed up by private sector spending and services consumption. Despite the recent resurgence of infections, the government will likely keep the country free of virus-related restrictions to maintain economic activities.
Another positive news is that Japan fully reopened its borders to tourists in October, offering the prospect of renewed inbound spending by visitors attracted by cheaper travel expenses thanks to their relatively stronger currencies.
What Bloomberg Economics Says...
“Looking ahead, we expect GDP to rebound in 4Q. A fiscal stimulus package that includes domestic travel subsidies, together with an increase in inbound tourism on the back of relaxed border restrictions, will likely support the economy. Higher inflation and weaker external demand remain downside risks.”
— Yuki Masujima, economist
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Still, there are many concerns hanging over Japan’s recovery path. Ongoing inflation is one, which may cool household consumption that accounts for about 60% of the nation’s GDP. Japan’s price increases hit their fastest clip in 40 years in October, and the pace likely sped up further in November based on last month’s Tokyo data, a leading indicator for nationwide trends.
Other recent data reports also indicate a global economic slowdown as central banks continue to raise interest rates, a development that could drag on Japan’s otherwise recovering exports.
China’s ongoing Covid Zero policy also keeps softening activity in the world’s second-largest economy, another factor that may discourage companies from spending.
The release showed:
- Private consumption rose a non-annualized 0.1% compared with an earlier reading of 0.3%
- Net exports dragged on GDP by 0.6 percentage point compared with earlier 0.7 point subtraction
- Private inventories added 0.1 percentage point to growth; preliminary figures showed a 0.1 point drag
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Japan’s Economy Shrank Less Over Summer Than First Thought - BNN Bloomberg
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