As global supply disruptions and fresh Covid-19 cases hit businesses and consumer spending, Japan’s economy contracted much faster than expected in the third quarter, raising challenges for the new government’s growth plans.
While many analysts expect the world’s third largest economy to rebound in the current quarter, worsening global production bottlenecks pose increasing risks to the outlook.
Japanese economy that is Asia’s second largest after China, shrunk at an annualized 3% in July to September after a revised 1.5% gain in the first quarter.
The weak GDP contrasts with more promising readings from other advanced nations such as the United States which saw its economy expand 2% in the third quarter on strong pent-up demand.
The Japanese Prime Minister plans to complete or compile a large scale economic stimulus package worth several tens of trillion yen on Friday but some economists were skeptical about its impact on growth near term.
Japanese firms still face risks from higher commodity costs and supply bottlenecks which threatens to undermine the economic outlook over the short to mid-term terms.
Meanwhile in China, despite fresh curbs to control Covid-19 outbreaks and supply shortages, China’s industrial output grew at a surprisingly faster pace in October.
The industrial output grew 3.5% in October from the same period a year ago, while retail sales growth also picked up. Retail sales in October rose 4.9% on the year compared with the same period last year, however, fixed asset investment has slowed down.
China’s sprawling manufacturing sector has slowed this year with output in September growing at its most feeble pace since March 2020 due to environmental curbs, power rationing, and higher raw material prices.
Sentiments in China’s property market has been shaken by a deepening debt crisis with property giant Evergrande Group and Kaisa Group grappling with looming default.
China is also battling a new wave of Covid-19 cases in the North. The economy had staged an impressive rebound from last year’s pandemic slump but has since lost some momentum. GDP expanded 4.9% from a year ago in the third quarter – its slowest pace in a year.