Japan Capex Data Signals Downward Revision in GDP

A corporate survey pointed to a downward revision in Japan's third-quarter gross domestic product on Thursday and analysts expect the export-driven economy to get into deeper trouble in the coming quarters on dwindling global demand.

AP

The data, closely watched as it is used in calculating revised GDP, came after a preliminary estimate showed Japan's economy shrank for the second consecutive quarter in July-September, meeting a widely used definition of recession.

As the global economy heads into the sharpest slowdown for decades, Japan's export-driven economy is seen lacking traction in the coming months.

"With the decline in capital spending this big, it's likely that third-quarter gross domestic product will be revised down," said Kyohei Morita, chief economist at Barclays Capital. "There's a growing chance that Japan's economy will remain in recession until the second quarter of next year."

Japanese companies cut spending on plant and equipment by 13.0 percent in July-September compared with the same quarter a year earlier, the Ministry of Finance survey showed.

The fall was exaggerated by change in accounting rules on leasing. Excluding investment by leasing companies, capital spending fell 4.2 percent.

Analysts said the data suggested the economy shrank more than the initial estimate of a 0.1 percent contraction in the three months to September. Revised GDP figures are due out on Dec. 9.

The data, coming after a 0.9 percent contraction in April-June, confirmed that Japan was in recession, as are most other developed countries. 

Recent negative data has underscored views that Japan's economic malaise is deepening in the final quarter of this year, as the global credit crisis hit not just U.S. and European economies but emerging nations that had until recently weathered the storm.

Industrial production is seen posting the sharpest fall ever in the fourth quarter as the country's leading exporters such as Toyota slashed production to brace for a sharp fall in global demand.

Some analysts speculate the Bank of Japan will cut interest rates again by the end of the current business year next March, after a cut to 0.30 percent from 0.50 percent in October, although derivative contracts are not pricing in a significant chance of that happening.

The BOJ said on Tuesday it would expand lending by about 3 trillion yen ($32 billion) to help tide over companies during a year-end credit squeeze.

Copyright 2008 Reuters. Click for restrictions.