Economists have said that it means Japan may fail to meet its goal of returning to pre-pandemic levels by the end of the year.
Statistics showed that in the third quarter, personal consumption, which accounts for more than half of Japan's economy, fell by 1.1 percent from the previous quarter, while business equipment investment decreased by 3.8 percent. Exports declined 2.1 percent, while imports fell 2.7 percent.
Weak demand remains the main reason for the weak momentum of Japan's recovery. The growth in the third quarter was significantly boosted by an increase in private inventories, without which the real GDP would have fallen 4.2 percent in terms of actual final demand, said Toshihiro Nagahama, chief economist at Dai-Ichi Life Research Institute.
Due to the COVID-19 pandemic, an 80-day state of emergency was implemented in many parts of Japan in the third quarter, which shortened the opening hours of restaurants and curbed consumption.
Meanwhile, the spread of the COVID-19 variants in Southeast Asia has disrupted supply chains, and shortages of semiconductors and components have hit the country's manufacturing production. Japan's auto exports declined significantly in the third quarter, while exports of intermediate products and IT-related products also showed a downturn.
After a sharp recession in 2020 due to the pandemic, the Japanese economy is in a slow recovery this year, but the momentum is weak, with economic indicators fluctuating.
Official data showed that on the demand side, exports and equipment investment recovered slowly on the whole, while personal consumption remained weak with sluggish growth. On the supply side, industrial and mining production continued to recover in the first half of this year, but the downside risk increased in the second half due to supply factors.
Real GDP fell at an annualized rate of 3.9 percent in the first quarter, and grew at an annualized rate of 1.9 percent in the second quarter, according to revised figures from the Cabinet Office.
The Japanese government issued a forecast in July, which lowered real GDP growth for the current fiscal year to about 3.7 percent from around 4.0 percent, and said the economy was expected to return to pre-pandemic levels in 2021.
In an October report, the Bank of Japan expected a grim situation of economic recovery, with the service sector in a slump and exports and industrial production slowing due to overseas supply constraints. Thus the central bank cut its forecast for real GDP growth in fiscal 2021 to 3.4 percent from 3.8 percent previously.
International institutions' expectations of Japan's economic recovery were generally more pessimistic. The World Bank predicted that Japan's economy would grow 2.9 percent in June this year, while the International Monetary Fund said the number would be 2.4 percent in October.
Nagahama said that though the growth of other major economies also slowed in the third quarter, Japan's decline was particularly sharp. To achieve the goal of returning real GDP to pre-pandemic levels by the end of this year, Japan's economy would have to grow at an annualized rate of more than 9.5 percent in the fourth quarter, which is very difficult, he noted.
While Japan's economy is expected to see a positive growth in the fourth quarter, growth will average only about 1 percent given the economy's chronic structural problems, according to media reports and economists.
The Nikkei said that different from other major economies, who focused on the development of digital economy and green economy during the pandemic, the Japanese government focused on providing household subsidies.
If not boosting growth through higher productivity levels, Japan could face both low growth and fiscal deterioration, the Nikkei said.
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