Japan Q3 GDP contracts at fastest pace since 2014 as trade war dims outlook

File photo of people walking on a street in a busy shopping district in Tokyo, Japan.
File photo of people walking on a street in a busy shopping district in Tokyo, Japan.PHOTO: REUTERS

TOKYO (REUTERS) - The Japanese economy contracted the most in over four years in the third quarter as capital expenditure tumbled, raising concerns about demand at home and overseas as the export-reliant nation grapples with global trade frictions.

The gross domestic product shrank at an annualised rate of 2.5 per cent, deeper than an initial estimate of a 1.2 per cent contraction and against economists' median estimate for a 1.9 per cent decline, revised data from the Cabinet Office showed.

That followed a revised 2.8 per cent expansion in the second quarter, and marked the sharpest contraction since the second quarter 2014 when the economy was hit by a sales tax hike in April that year.

Economists expect the economy, the world's third largest, to stage a rebound in the current quarter, noting the third-quarter slump was caused in part by natural disasters that disrupted supply chains and factory output.

However, the strength of recovery remains in doubt given cooling global growth, a rising tide of protectionism and slowing company profits.

The revised figure translates into quarter-on-quarter contraction of 0.6 per cent in real, price-adjusted terms, against a preliminary reading of a 0.3 per cent slide and economists' median estimate of a 0.5 per cent decline.

The capital expenditure component of GDP fell 2.8 per cent in July-September from the previous quarter, versus the median forecast for 1.6 per cent decline, and the preliminary 0.2 per cent drop.

That was the sharpest quarter-on-quarter decrease since the third quarter of 2009, the Cabinet Office data showed, raising worries about business spending which has been a bright spot in the economy.

Analysts say capex will be underpinned by corporate demand such as for refurbishing old facilities and boosting investment in automation and labour-saving technology to cope with labour shortages, although the pace of gains will likely be modest.

Private consumption, which accounts for roughly 60 per cent of GDP, fell 0.2 per cent in July-September from the previous three months, versus 0.1 per cent drop seen in the initial estimate.

Domestic demand shaved 0.5 per centage points off the revised GDP figure, while net exports - or exports minus imports - contributed minus 0.1 per centage point.