Japan revises Q3 GDP amid global recession

The third-largest economy in the world, Japan, experienced a smaller third-quarter decline than previously anticipated, supporting the idea that it is slowly emerging from COVID-19 gloom even as significant export markets continue to suffer.

Separate statistics revealed that the economy had experienced its first current account deficit in eight years in October, as a result of increased import costs brought on by this year’s collapse in the value of the yen to multi-decade lows and the consequent impact on consumers and companies.

The revised 0.8 percent annualized quarterly decrease in the gross domestic product (GDP) reported by the Cabinet Office on Thursday was lower than the early official estimate of 1.2 percent and the median projection of experts in a Reuters poll of 1.1 percent annualized decline.

Private inventories increased, which is why the revision was higher than the prior quarter’s annualized quarterly gain of 4.5 percent.

Unexpectedly, Japan’s economy contracted in the third quarter as rising import costs and prospects of a global recession affected consumer spending and company activity.

According to some observers, the economy may strengthen in the current quarter as a result of the relaxation of supply limits on semiconductors and autos as well as the removal of COVID-19 border controls, which will increase tourism.

Others, on the other hand, anticipate that the world economy will enter a recession in 2019, which would be devastating for Japan and other trade-dependent Asian exporters.

“Resumption of inbound tourism and campaigns to promote domestic travel will boost private consumption, helping the economy return to growth in the October-December quarter,” industry expert Takeshi Minami is quoted as saying.

“Going forward, a global slowdown led by rate hikes in advanced economies and a real-estate slump in China will weigh on the Japanese economy, possibly causing a technical recession, or two straight quarters of contraction in the first half of next year.”

Prior to annualization, third-quarter GDP decreased by 0.2 percent from the prior quarter as opposed to the earlier estimate of a contraction of 0.3 percent. Similar drop to the preceding reading was what analysts had predicted.

Private spending, one of the important sectors that accounts for more than half of Japan’s GDP, supported growth even though it was downgraded. The two major drivers of growth were capital spending and exports.

A weak yen and high import costs, which raise living expenses, more than outweigh the positive effects of GDP growth.

According to figures from the Ministry of Finance, rising energy and other import expenses caused Japan’s current account deficit to increase to 609.3 billion yen ($4.45 billion) in October. The lapse was the first since March 2014.

The current account deficit for October was 64.1 billion yen before the seasonal adjustment, the first deficit since January.

According to the Bank of Japan’s most recent Tankan survey of businesses, manufacturers’ sentiment deteriorated in the three months leading up to September as the future for the fragile economy was clouded by persistently high material costs.

According to a Reuters monthly survey released on Wednesday, manufacturers’ expectations for the recovery remained unchanged while businesses in the service sector saw things getting worse.

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