Japan Q3 GDP shrinks more than expected on weak consumption, exports

SINGAPORE (ICIS)–Japan’s economy shrank at a steeper annualized rate of 3.6% in the third quarter due to weaker-than-expected consumption and net exports amid heightened pandemic-related restrictions.

On a quarter-on-quarter basis, the contraction was revised to 0.9% from the initial estimate of 0.8%, data from Japan’s Cabinet Office showed on Wednesday.

“The revision reflects slight downgrades to private consumption and net exports, which is largely offset by a modest upgrade to business investment,” said Norihiro Yamaguchi, senior economist at research firm Oxford Economics, in a note.

The world’s third-biggest economy slipped back into contraction mode in the September quarter, when most of the country was under a state of emergency amid a spike in COVID-19 cases caused by the highly transmissible Delta variant at the time.

“With supply chain disruptions easing in the auto sector, production and exports are also projected to recover, albeit at a moderate pace,” Yamaguchi said.

A normalization in auto production, a recovery in consumption as well as low COVID-19 cases should fuel growth in the fourth quarter, the economist said.

“However, the Omicron variant poses a new downside risk in the near term,” Yamaguchi said.

Japan closed its borders completely to foreigners in late November, to prevent Omicron, which is deemed more highly contagious than the Delta variant of the coronavirus, from spreading in the country.