By Kantaro Komiya

TOKYO (Reuters – Japan’s economy may have contracted more quickly than anticipated in the quarter of July-September, according to a Reuters poll. The reason was that capital spending was slowing among businesses hit by tight supply.

According to 19 economists, the world’s third largest economy probably contracted by 3.1% annually in the third quarter. This is slightly more than the 3.0% decline in government estimates released last month.

Separate data will show that household spending fell for the third consecutive month in October. However, the drop was less than the two previous months. This is a signal of consumer sentiment improving as COVID-19 remains low.

Even though domestic consumption is declining, the next week’s data suggest that Japan’s economy may not recover quickly enough despite policymakers keeping monetary policy flexible and expanding fiscal policy to aid in pandemic recovery.

The revision in gross domestic product to September’s GDP was expected by economists. This is a smaller contraction than the previous 3.8% forecasted drop. This week’s Finance Ministry data showed that business spending declined due to problems in the supply chain.

The SMBC Nikko Securities economists said that Japan continues to be hit by double whammy due to the Delta variant’s impact and auto industry supply issues in the third quarter.

According to them, “As Japan’s supply constraint in the auto industry eases, Japan’s economy will clearly re-accelerate it growth in October-December.” They also noted that flagging Omicron could be a risk to the outlook.

In October, household spending likely decreased 0.6% in comparison to one year prior, but was less than 1.9% in September. The poll revealed that consumers have been spending more since the COVID-19 curbs were gradually eased.

The revised third-quarter GDP data will be released by the government on December 8th at 8:50 am. (Dec. 7th at 2350 GMT). Household spending data will also be announced on Dec. 7th at 8:30 am. (Dec. 6th at 2330 GMT).

Separate data is due Dec. 10, at 8:50 am (Dec. 9, at 2350 GMT) and will show that wholesale inflation has risen further to an all-time high of 40 years. After increasing 8.0% in October and 8.5% in October, it is likely that the price index for corporate goods increased 8.5% in November.