Japan's slip into surprise recession paves way for tax delay, snap poll

Mon Nov 17, 2014 10:33am EST
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By Leika Kihara and Linda Sieg

TOKYO (Reuters) - Japan's economy unexpectedly slipped into recession in the third quarter, setting the stage for Prime Minister Shinzo Abe to delay an unpopular sales tax hike and call a snap election two years before he has to go to the polls.

The recession comes nearly two years after Abe returned to power promising to revive the economy with his "Abenomics" mix of massive monetary stimulus, spending and reforms, and is unwelcome news for an already shaky global economy.

Gross domestic product (GDP) shrank by an annualised 1.6 percent in July-September, after plunging 7.3 percent in the second quarter following a rise in the national sales tax, which clobbered consumer spending.

The world's third-largest economy had been forecast to rebound by 2.1 percent, but consumption and exports remained weak, saddling companies with huge inventories to work off.

Abe had said he would look at the data when deciding whether to press ahead with a second increase in the sales tax to 10 percent in October next year, as part of a plan to curb Japan's huge public debt, the worst among advanced nations.

"GDP figures for July-September turned out not so encouraging," Abe said at a reception after returning from a weeklong overseas tour. "We are seizing a chance to exit long-lasting deflation and we cannot miss that chance," adding he wanted to analyse the situation and make a decision on the tax.

Media had already said Abe could announce his decision to delay the hike for 18 months as early as Tuesday and state his intention to call an election for parliament's lower house. Ruling party lawmakers expect the poll to be held on Dec. 14.

An adviser to Abe termed the economic slide "shocking," and urged the government to take steps to support the economy.   Continued...

A man takes a nap along a street next to his belongings as pedestrians walk past at Tokyo's Ginza shopping district,  November 16, 2014.  REUTERS/Yuya Shino