The Japanese economy shrank 0.9 percent in the July-September quarter from the preceding quarter, or at an annualized pace of 3.5 percent, in real terms, the Cabinet Office said in a preliminary report on Monday.
It was the first quarterly contraction in three quarters. The rate of decline in the July-September period was in line with most analysts’ expectations.
Growth in the Japanese economy, as measured by gross domestic product – the total output of goods and services in a nation – slipped into negative territory in the July-September quarter as global economic slowdown hit the nation’s exports and domestic demand also weakened due to the expiration of the government’s subsidy program for purchasers of environment-friendly cars.
Japan’s exports tumbled 5 percent between July and September on a quarter-on-quarter basis after rising 1.3 percent in the April-June period.
A slowdown in the Chinese economy, Japan’s largest trading partner, and many Chinese citizens’ boycotting of Japanese products amid political tensions between the two countries over the nasty territorial dispute, dealt a particularly severe blow to Japan’s exports.
The protracted strength of the yen has also weighed heavily on Japanese exports as it makes Japanese products more expensive in overseas markets.
Japan is now the world’s third-largest economy after the U.S. and China and is heavily dependent on exports for growth.
Consumer spending, which accounts for nearly 60 percent of Japan’s GDP, fell for the second straight month in a row in the July-September quarter, dipping 0.5 percent on a quarter-on-quarter basis. The pace of decline was much faster than 0.1 percent in the April-June quarter.
Amid growing uncertainty over the future course of the Japanese economy, corporate capital investment dropped for the first time in two quarters in the July-September quarter, sinking 3.2 percent on a quarter-on-quarter basis.
Public investment showed solid growth of 4.0 percent on a quarter-on-quarter basis due to demand related to reconstruction efforts from the devastating earthquake and tsunami that hit northeastern Japan in March 2011.
In nominal terms, or before adjustment for price change, the Japanese economy shrank 0.9 percent in the July-September period on a quarter-on-quarter basis, or at an annualized pace of 3.6 percent, amid continued deflation.
The July-September figures reinforced the growing view that the Japanese economy is now on the brink of a recession. Many analysts now expect the Japanese economy to post another contraction in the October-December quarter.
Prime Minister Yoshihiko Noda said during a parliament session on Monday that the government takes the July-September GDP figures seriously and reiterated that the government will compile a new economic stimulus package by the end of this month. “We will handle the situation with a sense of crisis,” Noda said.