JAPAN’S economy is expected to show a more severe contraction than originally estimated in revised second quarter growth data due this week because of a big drop in capital spending, a Reuters poll found, indicating any rebound in the current quarter may limited.

    A potential source of relief in this week’s major indicators could be core machinery orders, a leading indicator of impending capital investment, which was seen to have risen in July after showing the biggest month-on-month fall in over a year in June.

    “Any likely rebound in the third quarter will be supported by the non-manufacturing sector as external demand, especially that of China, is weak and thus it is hard to predict exports will recover strongly,” said Yuichiro Nagai, an economist at Barclays Capital Japan.

    “But factory output lacks the momentum and there is a downside risk to the pace of recovery in the current quarter.”

    Japan’s economy was expected to have shrunk an annualized 1.8 percent in April-June, downgrading from the initial estimate of a 1.6 percent contraction, the poll of 21 analysts found.

    This would translate into a quarter-on-quarter decline of 0.4 percent, unchanged from the initial reading.

    Capital expenditure, a major component of GDP, is likely be revised down to a 0.8 percent decline for the quarter from a preliminary a 0.1 percent fall, the poll found.

    The Cabinet Office will release the revised GDP data at 8:50 a.m today.

    Core machinery orders, a highly volatile data series regarded as a reliable indicator of capital spending in the coming six to nine months, were seen rising 3.7 percent in July after a 7.9 percent tumble the previous month.

    From a year ago, core orders are forecast to have climbed 10.5 percent after an annual 16.6 percent gain in June, the poll showed.(SD-Agencies)