TOKYO (AP) – Japan’s economy contracted in July-September according to preliminary data released today, returning the country to recession and clouding the outlook for the global recovery.
The 1.6 per cent drop in annual growth for the world’s third-biggest economy was much lower than expected. It raises the likelihood that Prime Minister Shinzo Abe will delay implementation of a sales tax hike planned for October 2015.
That will slow progress on Japan’s effort to bring its government debt, the largest among industrial nations, under control – a commitment Abe made when he took office in December 2012, vowing to restore Japan’s economic vigour after two decades of doldrums.
Abe was due back later today from the Group of 20 summit in Brisbane, Australia, where he and other leaders pledged to jolt the lethargic world economy back to life and boost global GDP by more than $2 trillion over five years.
Japan is struggling to regain momentum as its population declines and ages. Apart from its automakers, many of its manufacturers have lost their leading edge in innovation, while shifting production offshore. Japanese household incomes peaked more than a decade ago, and a growing share of workers struggle to make ends meet on part-time, contract work.
Most economists had forecast that the world’s third-biggest economy would expand at about a two per cent pace and the contraction in July-September took most analysts by surprise.
A recession commonly is regarded as two straight quarters of economic contraction, and the decline in July-September represented a 0.4 per cent decrease from the previous quarter. The economy contracted 7.1 per cent in April-June after the national sales tax was raised to eight per cent from 5 per cent.
Japan emerged from its last recession in late 2012, and saw relatively strong growth in 2013, as share prices rose and exporters like Toyota Motor Corp. logged a windfall from a sharp decline in the value of the Japanese yen.
