Daily Management Review

Weak Consumption Likely Resulted In A Slight Contraction For Japan’s Economy In Q3


Weak Consumption Likely Resulted In A Slight Contraction For Japan’s Economy In Q3
According to a survey of economists conducted by Reuters, there was a decline in Japan's economy in the third quarter as Covid-19 infection controls and supply shortages weighed on consumption and output, highlighting the glacial pace of recovery of the economy from the pandemic's devastation.
The lackluster report confirms that Japan will lag behind other nations in abandoning crisis-mode support measures even while economists expect the country’s gross domestic product (GDP) to go up in the coming quarter.
According to economists surveyed, there was likely a contraction of 0.8 per cent year on year in the July-September quarter in the world's third-largest economy. The economy had expanded by 1.9 per cent the previous quarter. The expected contraction in the latest quarter is likely to have been because of a 0.5 per cent drop in spending.
According to the survey, there was virtually no contribution of external demand to the expansion or contraction of the Japanese GDP for the quarter while there was a 0.6 per cent drop in capital investment compared to the previous quarter, indicating that corporate business activity may be losing steam after serving as a driver of economic development.
"Consumption, capital expenditure, and exports likely all fell in a sign Japan's economy continued to slump," said Saisuke Sakai, senior economist at Mizuho Research and Technologies.
"Service spending will recover as vaccinations proceed. But fears over another wave of infection could weigh on consumption next year, adding to headwinds such as the prolonged impact of chip shortages and worsening terms of trade," he said.
The government will release preliminary third-quarter GDP data at 8:50 a.m. on Nov. 15.
Strong global demand helped the export-dependent Japanese economy to rebound from the initial hit last year from the Covid-19 pandemic. However this year, there was the imposition of a slew of emergency curbs to prevent the spread of resurgent bouts of the pandemic in the country which depressed domestic consumption and slowed down the sustenance of the economic recovery of the economy.
Despite the fact that some economists expect a rise in domestic consumption after the lifting of emergency curbs on September 30, they also expect output and exports to be hit by the global semiconductor chip shortages, rising costs of raw materials, and disruptions to the global supply chain.
It is likely that separate data will reveal the annual wholesale inflation of Japan hitting 7 per cent in October and would be higher than the 6.3 per cent in September, which is a signal of corporate margins being impacted by rising raw material costs.
The Bank of Japan will release the wholesale price data at 8:50 a.m. on Nov. 11.