THE Japanese economy contracted the most in more than four years in the third quarter as companies slashed spending, threatening to chill the investment outlook in 2019 as the nation grapples with slowing global growth and trade frictions.

The slump in the world’s third-biggest economy adds to signs elsewhere in Asia and Europe of weakening momentum, with recent data in China and Australia showing a slowdown in growth and stoking concerns about the wider impact of the Sino-U.S. trade war.

Japan’s gross domestic product shrank at an annualized rate of 2.5 percent in the July-September quarter, the worst downturn since the second quarter of 2014, from 2.8 percent growth in the second quarter, revised data from the Cabinet Office showed.

The downturn, in part driven by a series of natural disasters that forced factories to cut production, was deeper than an initial estimate of a 1.2 percent contraction and against economists’ median forecast for a 1.9 percent decline.

The capital expenditure component of gross domestic product fell a sharp 2.8 percent from the second quarter, worse than the expected 1.6 percent decline and the preliminary 0.2 percent drop.

That was the biggest decrease since the third quarter of 2009, weighed on by wholesalers, retailers, and information and communications machinery, the Cabinet Office data showed.

“Capex is decelerating in areas such as all-purpose machinery, production equipment and automobiles,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“Depending on extent of global slowdown and trade frictions, companies may put off their bullish spending plans or even make adjustments from the latter half of this fiscal year onwards.”

That risk — of businesses cutting back on spending — is a worry for policymakers who are counting on capital expenditure to boost growth and inflation. Capex has been a bright spot in the economy since late 2016, underpinned by investment in automation and labor-saving technology to cope with labor shortages.

The capex slump is particularly worrying as it comes at a time of cooling global growth, a rising tide of protectionism and slowing company profits.

While analysts expect the economy to stage a rebound in the current quarter as factories lift production following the natural disasters, there are worries the Sino-U.S. trade war could crimp global growth and hurt export-led Japan.

The revised gross domestic product figure translates into quarter-on-quarter contraction of 0.6 percent in real, price-adjusted terms, against a preliminary reading of a 0.3 percent slide and economists’ median estimate of a 0.5 percent decline.

Private consumption, which accounts for roughly 60 percent of gross domestic product, fell 0.2 percent in the July-September period from the previous three months, versus 0.1 percent drop seen in the initial estimate.

Domestic demand shaved 0.5 percentage points off the revised gross domestic product figure, while net exports, or exports minus imports, contributed minus 0.1 percentage point.

(SD-Agencies)