Japan economy shrinks more than expected as supply shortages hit
Tokyo - Japan economy shrank much faster than expected in the third quarter as global supply disruptions hit exports and business spending plans and consumer sentiment soured by COVID-19 cases.
While many analysts expect the world third-largest economy to rebound in the current quarter as virus restrictions ease, worsening global production bottlenecks pose a growing risk to export-dependent Japan.
"The contraction was much bigger than expected due to supply chain constraints, which hit auto output and capital expenditure hard," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"The economy is expected to rebound in the current quarter, but the recovery will be slow as consumption has not made a good start since the relaxation of COVID-19 control measures in late September."
Preliminary gross domestic product data released on Monday showed the economy contracted at an annualized rate of 3.0 percent in July-September after a revised 1.5 percent rise in the first quarter, much worse than the median market forecast of a 0.8 percent contraction.
The weak GDP figures contrast with more upbeat data from developed countries such as the US. The U.S. economy grew 2.0% in the third quarter, driven by strong pent-up demand.
In China, factory output and retail sales unexpectedly rose in October despite supply shortages and new COVID-19 containment measures, data showed on Monday. On a quarterly basis, GDP fell 0.8%, versus market expectations for a 0.2% decline. Some analysts say Japan heavy reliance on the car industry means its economy is more vulnerable to trade disruptions than other countries.
Fumio Kishida, Japan prime minister, plans to unveil a massive "trillions of yen" stimulus package on Friday, but some economists are skeptical about its impact on growth in the short term.
"The plan is likely to be a mix of short-term and long-term growth measures and the focus is likely to be vague, so it will not have much impact in the short term," Norinchukin Minami said.
Consumption fell 1.1 percent in July-September from the previous quarter after rising 0.9 percent in April-June. Capital spending also fell 3.8 percent, after rising a revised 2.2 percent in the previous quarter. Domestic demand subtracted 0.9% from GDP growth. Exports fell 2.1% in July-September from the previous quarter, hit by chip shortages and supply chain constraints. With exports still grim, Japan economy is likely to experience moderate growth after the second quarter, at an annualized rate of about 1% to 2%, even taking into account the impact of stimulus measures.
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