Japan's GDP contracted 6.3% year-on-year between October and December

Japan's Gross Domestic Product (GDP) contracted 6.3 percent in the last quarter of 2019 compared to the same period last year, mainly due to the drop in domestic consumption, according to data published today by the Executive.

Between the past months of October and December, the economy fell 1.6% compared to the third quarter of 2019, according to the preliminary estimate published by the Cabinet Office.

The factor that contributed most to this negative evolution was the sharp drop in household spending, of 11.3% year-on-year, which is attributed to the entry into force in October of the increase in the consumption tax (VAT).

The contraction, greater than expected by most analysts, comes after four consecutive quarters of growth and is the most acute recorded by the third world economy since the second quarter of 2014.

Domestic consumption, which represents around 60 percent of the Japanese economy and whose slight recovery had favored previous advances in GDP, was clearly affected by the tax increase, as also shows its 2.9% quarter-on-quarter decline.

Japan has applied a VAT increase of two percentage points since October 1, to 10%, a measure envisaged by the Government that Shinzo Abe leads to pay for the growing indebtedness caused by demographic aging in its public health systems and of pensions.

Exports, another of the components that had contributed most to the expansive streak of the Japanese economy, experienced a fall of 0.4% year-on-year and 0.1% compared to the third quarter of 2019, in the context of trade tensions between States United and China.

More pronounced was the fall in corporate capital investment, 14.1% compared to the same period of 2018 and 3.7% quarter-on-quarter.

On the other hand, public investment grew 4.6% between October and December compared to a year earlier and 1.1% compared to the third quarter, due to the stimuli applied by the Abe Executive to mitigate the negative impact of the VAT tax.