By Leika Kihara

TOKYO (Reuters – Japan’s economy probably contracted in the 3rd quarter due to COVID-19-related infections, supply restrictions, and curbs. This reflects the slow rate of recovery following the devastating pandemic.

Although analysts anticipate growth to recover in the current quarter of the year, weakness in data will only increase the likelihood that Japan will fall behind other countries when it comes time for withdrawal from crisis-mode stimulus measures.

According to Reuters analysts, the third largest economy in the world likely contracted 0.8% annually in July-September, after growing 1.9% over the preceding quarter. This is likely due to a 0.5% drop in consumption.

According to the poll, external demand was not a contributor or decrease in gross domestic product (GDP). Capital expenditure declined 0.6% compared with the prior quarter. These are signs that corporate activity is losing momentum, after being a major driver of growth.

Saisuke Sakai senior economist at Mizuho Research and Technologies stated, “Consumption and capital expenditure as well as exports probably all declined in a sign Japan’s economic slump continued.”

“Service spending will rebound as vaccines are administered. However, there are still concerns about a second wave of infections that could affect consumption in the next year. This is due to factors such as chip shortages or worsening terms and trade.

Preliminary third quarter GDP data will be released by the government at 8:50 AM on November 15 (2335 GMT, Nov. 14).

Strong global demand helped Japan emerge from its initial pandemic attack last year. However, a series of urgent curbs against the pandemic put a damper on consumption and delayed sustained growth.

The Sept. 30 lift of curbs will likely to support consumption but chip shortages and rising raw material prices have impacted output and exported.

Data from separate sources is likely to indicate that Japan’s annual wholesale inflation was 7.0% in Oct, surpassing 6.3% in Sept., a signal that rising raw materials costs are impacting corporate margins.

The Bank of Japan (23:50 GMT) will release wholesale price data on Nov. 11.