Japan's economy shrinks more than expected in third quarter

Many analysts expect the world's third-largest economy to rebound in the current quarter.

A surge in Covid-19 cases hit business and consumer spending in Japan, raising challenges for the new government's growth plans.
Reuters

A surge in Covid-19 cases hit business and consumer spending in Japan, raising challenges for the new government's growth plans.

Japan's economy shrank far more than expected in the three months to September as a surge in virus cases hit spending and supply chain issues hampered business.

The world's third largest economy shrank 0.8 percent quarter-on-quarter, much worse than the 0.2 percent economists had forecast.

The contraction was driven in part by a 1.2-percent dip in household consumption that tracked the imposition of a virus state of emergency over the summer, when Japan saw its worst-ever Covid-19 surge.

Also weighing heavily was a drop in non-residential investment, which plunged 3.8 percent on a chip shortage and supply chain issues that weighed on factory output.

Loading...

Fall in exports

Exports, another key factor driving Japan's economy, were also down, with vehicle exports stalling over a shortage of semiconductor components, though imports of goods and services also dropped, making net trade a slight positive overall for GDP growth.

The data, issued by the Cabinet Office, revised the figure for the second quarter to June to 0.4 percent growth.

Virus cases surged in Japan over the summer after a slow start to the country's vaccination campaign and the government imposed a virus state of emergency that limited restaurant and bar opening hours and alcohol sales.

The Olympics went ahead during the period despite calls for its cancellation, but foreign spectators and almost all domestic fans were barred.

Analysts hopeful about economy 

Analysts said that the slowdown was likely short-lived as Japan's vaccination programme has picked up speed, with the government lifting virus restrictions in October.

"For the fourth quarter, if the virus cases are kept low, consumption will probably bounce back strongly," said Takashi Miwa, economist at Nomura Securities.

He warned though that "some companies say the impact on production from the supply issues may continue until December".

New Prime Minister Fumio Kishida has vowed to shore up economic growth after a series of hits from the virus.

He is expected to announce an economic stimulus package worth hundreds of billions of dollars this week and his government has pledged to provide vaccine booster shots as early as next month.

READ MORE: Japan still in recession, but economy shrank at lower rate

Route 6