JAPAN'S economy contracted in the latest quarter, signaling that like Europe it may already be in recession, further weighing down world growth.
On an annual basis, the world's No. 3 economy shrank 3.5 percent in the July-September quarter, the government said yesterday. It was in line with gloomy forecasts after an islands dispute with China hit exports that were already weakened by feeble global demand.
The bad news will temper optimism over recoveries in China and the US, where some economists are predicting growth will top 3 percent in the third quarter. China's painful slowdown likely bottomed out in the third quarter, with recent indicators such as factory output and auto and retail sales showing improvement. And Europe, though it may have turned a corner on its debt crisis as the financial system stabilizes, may get worse before it gets better.
Japan's outlook remains bleak, with most economists forecasting a further decline in economic activity for the October-December quarter, which would officially put it in a recession according to the common definition of two straight quarters of contraction.
Consumer spending fell 0.5 percent in the third quarter, as subsidies for auto purchases expired, and corporate capital spending shed 3.2 percent. Spending on reconstruction from the country's March 2011 tsunami and nuclear disasters has also weakened.
The drop for the current quarter may not be as severe as that seen from July to September.
"If the economy does recover in any way, it will be a minute rebound," said David Rea, an economist in London with Capital Economics.
