Japan upgrades Q3 GDP as global recession, COVID risks linger

Japan’s economy shrank less than initially estimated in the third quarter, bolstering the view that the world’s number-three economy is slowly recovering from COVID-19 doldrums even as its major export markets show further signs of weakening.

The revised 0.8% annualised quarterly contraction in gross domestic product (GDP) released by the Cabinet Office on Thursday compared with economists’ median forecast for a 1.1% annualised decline in a Reuters poll and an early official estimate of a contraction of 1.2%.

The result compared with a 4.5% annualised quarterly gain in the previous quarter.

Japan’s economy unexpectedly shrank in the third quarter as global recession risks, China’s faltering economy, a weak yen and higher import costs hurt consumption and businesses.

The economy may rebound in the current quarter due to easing of supply restrictions on microchips and cars, and lifting of COVID-19 border controls, boosting tourism, some analysts say.

However, others are bracing for the global economy to tip into a recession next year, dealing a sharp blow to trade-reliant Asian exporters such as Japan.

Before annualising, third-quarter GDP was down 0.2% on the previous quarter, compared with the initial contraction estimate of 0.3%. Analysts had expected a similar decline to the earlier reading.

Among sectors, private consumption, which makes up more than half of Japan’s GDP, and capital expenditure and exports served as main drivers of growth.

However, a weak yen and hefty import bills, which boost the cost of living, more than offset GDP growth contributors.

The BOJ’s latest tankan report showed manufacturer’ mood had worsened in the three months to September, as stubbornly high material costs clouded the outlook for the fragile economy.