Japan’s economy shrinks more than expected as supply shortages hit

TOKYO, Nov 15 (Reuters) – Japan’s economy contracted much faster than expected in the third quarter as global supply disruptions hit exports and business spending plans and fresh COVID-19 cases soured the consumer mood.

While many analysts expect the world’s third-largest economy to rebound in the current quarter as virus curbs ease, worsening global production bottlenecks pose increasing risks to export-reliant Japan.

Also read: BOJ’s Kuroda projects inflation approaching 1% mid-next year

“The contraction was far bigger than expected due to supply-chain constraints, which hit car output and capital spending hard,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“We expect the economy to stage a rebound this quarter but the pace of recovery will be slow as consumption did not get off to a good start even after COVID-19 curbs were eased late in September.”

The economy shrank an annualised 3.0% in July-September after a revised 1.5% gain in the first quarter, preliminary gross domestic product (GDP) data showed on Monday, much worse than a median market forecast for a 0.8% contraction.

The weak GDP contrasts with more promising readings from other advanced nations such as the United States, where the economy expanded 2.0% in the third quarter on strong pent-up demand.

In China, factory output and retail sales unexpectedly rose in October, data of Monday showed, despite supply shortages and fresh COVID-19 curbs.

On a quarter-on-quarter basis, GDP fell 0.8% compared with market forecasts for a 0.2% decline.

Some analysts said Japan’s heavy dependency on the auto industry meant the economy was more vulnerable to trade disruptions than other countries.

Shinichiro Kobayashi, principal economist at Mitsubishi UFJ Research and Consulting, said automakers make up a large part of Japan’s manufacturing sector with a wide range of subcontractors directly affected.

STIMULUS PLAN

Prime Minister Fumio Kishida plans to compile a large-scale economic stimulus package worth “several tens of trillion yen” on Friday, but some economists were sceptical about its impact on growth near-term.

“The package will likely be a mixed bag of near-term and long-term growth measures, and the focus may be blurred, so it won’t have much impact near-term,” Norinchukin’s Minami said.

Consumption fell 1.1% in July-September from the previous quarter after a 0.9% gain in April-June.

Capital expenditure also decreased 3.8% after rising a revised 2.2% in the previous quarter.

Domestic demand shaved off 0.9% point to GDP growth.

Exports lost 2.1%…