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Japan's first quarter GDP contraction seen deeper on soft capex: Reuters poll

Kitco News

TOKYO (Reuters) - Japan’s economy suffered a deeper contraction in the first quarter of 2020 than previously thought, according to a Reuters poll, after recent data showed companies in the world’s third largest economy curbed spending during this period.

The economy likely shrank an annualised 2.8% in January-March, the poll of 14 economists showed on Friday, as they bet on a bigger slump than the 2.2% contraction in the government’s second preliminary estimate released in June.

The poll comes after the finance ministry this week revised capital expenditure data sharply lower, showing companies had spent much less in the first quarter than originally thought as they were hit by the coronavirus pandemic.

The government will, in a break from usual practice, announce additional revisions to gross domestic product for the January-March quarter on Monday, reflecting those changes.

“Capital spending in the GDP for January-March was likely downgraded reflecting the situation of firms which were seriously affected by the coronavirus outbreak,” said Saisuke Sakai, senior economist at Mizuho Research Institute.

“This appears to have led GDP for the quarter to be downgraded.”

The economy likely shrank 0.7% on a quarterly basis in the Jan-March period, the Reuters poll showed, compared with a 0.6% fall in the government’s second preliminary estimate.

Economists also expected the revisions next week to show capital expenditure grew 1.1% in the first quarter, down sharply from a previous government estimate for 1.9% growth.

While Japan has been hard hit by the coronavirus outbreak, as the nation’s state of emergency forced people to stay home and businesses to close, there are tentative signs that a reopening of the economy is helping business activity.

Separate data next Friday is expected to show consumer spending could be past its worst. Economists in the poll expect household spending to have fallen 7.5% in June from a year earlier, less than half the 16.2% drop in May.

Other data on Tuesday meanwhile is expected to show the core consumer price index (CPI) in Tokyo, which includes oil products but excludes fresh food prices, rose 0.2% in July, unchanged from June, according to the poll.

Reporting by Kaori Kaneko; Editing by Ana Nicolaci da Costa

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