• Kyodo

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The economy shrank an annualized real 1.9 percent in the third quarter, the government said Monday, reinforcing the view that the Japan slid into recession after April’s consumption tax hike.

The July-September contraction in real gross domestic product — the total value of goods and services produced — is deeper than the 1.6 percent figure in the preliminary report on Nov. 17 and follows the revised 6.7 percent GDP plunge logged in April-June, corresponding to a 0.5 percent quarter-on-quarter decline, the Cabinet Office said.

The third quarter saw domestic demand languish after the consumption tax hike to 8 percent on April 1, adding to concern over the outlook for the economy as Prime Minister Shinzo Abe pitches his deflation-busting policy mix dubbed “Abenomics” in his campaign for Sunday’s Lower House election.

But the administration still believes the economy is “on a moderate recovery track,” Deputy Chief Cabinet Secretary Hiroshige Seko told a news conference.

Corporate capital spending, which Abe’s Cabinet sees as the key to shoring up the economy, fell 0.4 percent from the previous quarter, revised from a 0.2 percent fall. Private consumption — accounting for roughly 60 percent of GDP — expanded only 0.4 percent, unchanged from the preliminary data.

Public investment grew 1.4 percent but was downgraded from the initially reported 2.2 percent rise.

Imports climbed 0.7 percent, less than with the previously reported 0.8 percent, while exports stayed unchanged at a 1.3 percent increase. Housing investment plunged 6.8 percent, compared with the previous 6.7 percent.

Economists said the new GDP data clearly show that the impact of the consumption tax hike on the economy has been non-negligible.

“With the second straight quarterly contraction of the economy, we have reconfirmed that the effect of a tax hike on the economy cannot be ignored when wages are not on a recovery track,” said Takeshi Minami, chief economist at the Norinchukin Research Institute.

Looking ahead, however, the economists largely retained an optimistic view, projecting GDP growth in the October-December quarter.

Junichi Makino, chief economist at SMBC Nikko Securities Inc., said he expects the economy to “show a relatively strong rebound” in the fourth quarter on an expected recovery of private consumption and exports.

The Japan Center for Economic Research said last week that GDP is projected to expand by an annualized 3.3 percent in October-December and 2.2 percent in January-March 2015, citing the average projection of 42 private-sector economists.

Monday’s results came after Abe announced Nov. 18 that he was postponing another consumption tax hike to 10 percent by 18 months to April 2017, prompted by concern the second round of the two-stage tax hike would hurt the economy further.

Many analysts said the delay will help the economy grow, accelerate the administration’s efforts to beat deflation, promote growth and restore Japan’s fiscal health, which remains the worst among the major industrialized economies.

Last month, Abe dissolved the Lower House for a snap election, saying he will seek a fresh public verdict on Abenomics, his three-arrow policy which centers on aggressive monetary easing, fiscal stimulus and vows of growth-oriented reforms. All major political parties have expressed the view that delaying the second tax hike was inevitable to protect the economy.

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