Japan’s gross domestic product contracted at an annualized rate of 28.1% in the second quarter, according to revised figures from the Cabinet Office. The drop is the largest on record since 1955.

The figures revised down preliminary estimates released last month that showed the Japanese economy, the third largest in the world, contracting at a rate of 27.8% for the year.

Economists polled by Reuters had predicated a median contraction of 28.6%. A survey of economists by QUICK showed an expected decline of 28.4%.

Japan’s GDP has fallen for three consecutive quarters.

Takuji Okubo, a director at the Economist Corporate Network, said the quarter was the worst since World War II but the Japanese economy was “on track to recovery” in the medium term.

The Cabinet Office reported a 4.7% drop in capital expenditures, up from a preliminary report of a 1.5% drop, suggesting economists underestimated initially the impacts of the COVID-19 crisis on the economy.

“We can’t expect capital expenditure to strengthen much ahead. Companies won’t boost spending when the outlook is so uncertain,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.

Japan is expected to hold an election in the coming weeks after Prime Minister Shinzo Abe abruptly announced his resignation on August 28.

Yoshihide Suga, Abe’s chief cabinet secretary, has suggested he is willing to increase government spending to stimulate the economy if elected. The government has already announced $2 trillion in stimulus spending to go along with an easing program by the Bank of Japan.

“The risk ahead is that the effect of measures taken so far, such as pay-outs to households, will peter out,” Koichi Fujishiro, an economist at Dai-ichi Life Research Institute, said. “If COVID-19 weighs heavily on wages, the new administration could take additional steps to help households.”

David Mareuil/Anadolu Agency via Getty Images

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