Slumping capex points to deepening recession next year, economists say
HONG KONG (MarketWatch) -- Japan's economy contracted at a steeper-than-anticipated pace in the July-to-September period than initial government estimates, pointing to harder times ahead for the world's second-largest economy as businesses cut spending in anticipation of a prolonged global downturn.
The economy shrank 1.8% on an annualized basis in the third quarter, steeper than an initial estimate, made a month ago, of a 0.4% contraction, according to revised GDP estimates released by the Cabinet Office Tuesday. The economy shrank 0.5% quarter on quarter, compared to an initial estimate of 0.1% contraction, the revised figures showed.
"There's absolutely no good news anywhere in the figuring," said Glenn Maguire, SocGen's Asia-Pacific economist, based in Hong Kong. "Japan is clearly entering the fourth quarter on a much weaker footing than previously expected."
The downturn was twice the consensus estimate for a 0.9% contraction annualized, according to data compiled by Credit Suisse.
Tuesday's figures confirm data released last month, which showed that Japan's longest boom in the post-World War II era came to an end in April.
Economists flagged slumping capital expenditure in the nonfinancial economy as a major indicator of the scale of the downturn that lies ahead. The revised figures showed capital spending contracted 2% on quarter, up from an initial estimate of a 1.7% contraction.
A Ministry of Finance survey released last week showed capital spending excluding software fell 13.3% in the third quarter from a year earlier, marking the sixth quarterly decline.
"We see considerable risk of further downturn in corporate capex, with machinery orders data and production figures painting a very gloomy picture," wrote Credit Suisse economists headed by Hiromichi Shirakawa, in a note published Dec. 5.
Credit Suisse forecasts Japan's economy will contract 1.8% in the first quarter of 2009.
Among bright spots in Tuesday's data, household spending, which contributes just over half to Japan's GDP, rose 0.3% from the previous three months, unchanged from initial estimates.
Credit Suisse forecast the upcoming quarterly Tankan survey will show the business conditions diffusion index for large manufacturers will fall to minus 36 from minus 3 and for large non manufacturers to minus 20 from 1. The Bank of Japan will release its quarterly business survey Dec. 15.
"The type of export goods that Japan produces such as cars and high end electronics are typically purchased on finance or credit and that dynamic has just completely disappeared," Maguire said.
He said Japan would be hurt quite badly as U.S. households retrench before a recovery begins to kick in somewhere during the second and third quarters of 2009.
