Japanese economy recedes more than expected

Japan’s economy dwindled faster than anticipated in the third quarter as disruptions in global supply affected exports and business spending plans even as new coronavirus cases dampened consumer mood.

Despite the expectations of many analysts that Japan’s economy would recover in the current quarter as pandemic restrictions are lifted, worsening global production bottlenecks remain a risk to the export-reliant country.

On Monday, preliminary gross domestic product data (GDP) showed that Japan’s economy—the world’s third-largest—contracted an annualized 3.0% in July-September after a revised 1.5% increase in the first quarter. The decline was worse than the median market forecast for a 0.8% contraction.

The weak GDP compares poorly with the more promising readings from other advanced nations, such as the U.S., where the economy grew 2.0% during the third quarter thanks to solid demand.

Many analysts noted that the vulnerability of the Japanese economy to trade disruptions compared to other countries could be attributed to Japan’s heavy reliance on the auto industry.

Shinichiro Kobayashi, Mitsubishi UFJ Research and Consulting’s principal economist, remarked that automakers comprise a large part of Japan’s manufacturing sector, with a wide range of subcontractors directly affected.