Japan said today that its economy cooled by more than previously thought in the third quarter of the year, halving its growth estimate to 0.2%. However, analysts have predicted a pick-up going into 2006.
On an annualised basis, gross domestic product (GDP) grew 1% in the three months to September, down from the 1.7% preliminary estimate, the Cabinet Office said.
However, analysts noted that the downward revision was at least partly the result of changes to calculation methods and that the second-quarter growth estimate was upgraded to 1.2% quarter-on-quarter from 0.8%.
They said the world's number two economy appeared to have entered a period of adjustment and is now poised to regain momentum going into next year with the Bank of Japan set to finally win its long battle with deflation.
On a yearly basis, Japan's economy is now estimated to have grown by 5% in the second quarter, up from the 3.3% previously reported, and by 5.7% in the first instead of 4.9%.
Together with yesterday's October core private-sector machinery orders, which rose 4.8%, slightly less than expected, the GDP figures were seen as evidence Japan remains on a slow but steady recovery path.
The Bank of Japan is forecasting that the world's second-largest economy will grow by 2.2% in the fiscal year to March 2006 and 1.8% the following year.
The Organisation for Economic Co-operation and Development said last week it expects Japan's economy to expand 2.4% in 2005 before easing to about 2% in both 2006 and 2007.
One source of concern in today's data was the GDP deflator, which showed a fall of 1.4% last quarter from a year earlier, bigger than the 1.1% decline in the initial estimate, economists noted. Bank of Japan governor Toshihiko Fukui suggested yesterday that an end to the central bank's super-expansionary monetary policy, which aims to stem almost eight years of falling consumer prices, is drawing closer.
