Japan’s recession was deeper than initially estimated as company investment unexpectedly shrank, a blow to Prime Minister Shinzo Abe as he campaigns for re-election on his economic credentials.
The economy contracted an annualized 1.9 percent in the July to September period from the previous quarter, weaker than the 1.6 percent drop reported in preliminary data. The result was also below every forecast in a Bloomberg News survey that showed a median 0.5 percent decrease.
The surprise decline in business investment sapped the strength of 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 today’s data.
The Topix index of stocks was little changed in morning trading in Tokyo. The yen was 0.1 percent lower at 121.56 per dollar, after earlier touching a seven-year low.
Surprise Worsening
Economists raised their forecasts for GDP earlier this month after finance ministry data showed companies increasing investment in the July-to September period. However, today’s data showed private investment falling 0.4 percent from the previous three-month period, compared to the median estimate for 0.9 percent growth in the Bloomberg News survey.
Changes in inventories were also a bigger-than-expected drag, subtracting a more-than-forecast 0.6 percentage point from growth, the same as the initial report.
Private consumption rose 0.4 percent, unchanged from the initial report last month, following a 5.1 percent drop in the previous quarter, today’s report showed.
The opposition used the data to attack Abe’s record of managing the economy. “The bankruptcy of Abenomics is clear to everyone’s eyes,”Tetsuro Fukuyama, policy chief of the main opposition Democratic Party of Japan, said in a statement after the release. “Abenomics has brought about excessive yen weakening and bad inflation, hurt households, and stalled consumption.”
Opposition weakness
Hobbled by factionalism and shifting policies as well as funding shortages, the opposition parties have failed to make inroads with voters. Abe’s Liberal Democratic Party could gain a two-thirds majority in the lower house of parliament after the election even without its coalition partner, according to a forecast by the Mainichi newspaper today. The party had 294 seats in the 475-seat house before it was dissolved last month.
The downward revision of gross domestic product was due mainly to changes in capital spending and public investment, according to the Cabinet Office.
The downward revision to capital expenditure was partly due to differences in how the finance ministry and the Cabinet Office calculate investment data, the Cabinet Office said. Today’s revisions took in the finance ministry’s business survey data from last week.
Rating Cut
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 weaker GDP figures provided a factor to justify Abe’s decision to delay a further sales-tax increase,” said Hiroaki Muto, an economist at Sumitomo Mitsui Asset Management Co. in Tokyo. The government will probably compile a stimulus package to help the economy, and it may be about 3 trillion yen ($25 billion), he said.
