Japan Q3 GDP unexpectedly shrinks, Abe seen delaying tax hike

An electronics retail store in Tokyo on Nov 16, 2014. -- PHOTO: REUTERS
An electronics retail store in Tokyo on Nov 16, 2014. -- PHOTO: REUTERS

TOKYO (Reuters) - Japan's economy unexpectedly shrank an annualised 1.6 per cent in July-September after a severe contraction in the previous quarter, likely solidifying the view that premier Shinzo Abe will delay a second sales tax hike next year.

The preliminary figure for gross domestic product (GDP) compared with a 2.1 per cent increase forecast by economists in a Reuters poll. It followed a revised 7.3 per cent contraction in the second quarter, which was the biggest slump since the March 2011 earthquake and tsunami, Cabinet Office data showed on Monday.

On a quarter-on-quarter basis, the economy shrank 0.4 per cent in the third quarter.

Private consumption, which accounts for about 60 per cent of the economy, rose 0.4 per cent from the previous quarter, a sign that an increase in Japan's sales tax to 8 per cent from 5 per cent in April continued to take a toll. That compared with a median market forecast for a 0.8 per cent increase.