Japan’s economy shrinks annualized 6.3 percent in October-December quarter

world economy

Japan’s economy shrank an annualized 6.3 percent in the October-December quarter, the government said in a report on Monday.

The Cabinet Office said the contraction in inflation-adjusted gross domestic product for the three-month period equates to a 1.6- percent decrease from the previous quarter.

The latest figure marks the first contraction in five quarters and the sharpest decline since a 7.4-percent fall logged in the April-June period of 2014.

The Cabinet Office’s preliminary figures compare to median analysts forecasts of a 3.7-percent contraction in the reporting period, with the previous outlook coming on the heels of an annualized 1.8 percent expansion logged in the July-September period.

The decline followed a consumption tax hike in October from 8 to 10 percent, with economists believing that private and business consumption were dialed back more than previously expected, with a key indicator being the 7.4-percent drop logged in 2014, which was triggered by the previous tax hike here from 5 to 8 percent, they highlighted.

The government’s figures showed that private consumption, which accounts for roughly 60 percent of the Japanese economy, fell 2.9 percent in the recording period, from the previous three-months, with the tax hike central to the drop in spending.

A Cabinet Office official was quoted as saying that in the reporting period a myriad of items saw spending slashed, including that on cars, home appliances and alcoholic beverages, as households tightened their purse-strings after the tax hike, which triggered the first drop in consumption in five quarters.

Capital expenditure, a key indicator of domestic demand, retreated 3.7 percent in the recording period, the Cabinet Office said, in a clear sign that businesses also reigned in spending owing to the tax hike. The office said that private residential investment also fell 2.7 percent.

As for trade, exports slipped 0.1 percent, while imports fell 2.6 percent, owing in part to falling demand for vehicles, the government’s figures showed.

Leading economists said on Monday that they believe the January-March period will also show a period of negative growth, with a second quarter of negative growth meaning that Japan, the world’s third largest economy, would have entered a technical recession.

In nominal terms, or unadjusted for price changes, Japan’s economy contracted an annualized 4.9 percent, and 1.2 percent on the quarter, the Cabinet Office said, adding that for 2019, the economy grew 0.7 percent in real terms, compared to 0.3 percent growth in 2018. Enditem

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