December 09, 2006	Saturday	Ziqa'ad 17, 1427

TOKYO, Dec 8: Japan said on Friday its economy grew at less than half the pace previously reported in the third quarter as falling domestic demand sapped momentum while October machinery orders missed expectations.

Gross domestic product (GDP) grew by just 0.2 pc in the three months to September from the previous quarter, down from an initial estimate of 0.5 pc and the second quarter's 0.3 pc gain, the Cabinet Office said.

Asia's largest economy grew by 0.8 pc on an annualized basis in the third quarter, also much slower than the 2.0 pc preliminary estimate.

"Sweeping changes to Japan's GDP history suggest the recent recovery has been weaker than previously thought," warned Richard Jerram, chief economist for Japan at Macquarie Securities.

Weak domestic demand left exports as the main driver of growth, making the economy vulnerable to a slowdown in the US and Japan's other major trading partners, analysts noted.

Firms also ploughed less money than initially thought into new factories and equipment, a major driver for the economy, the figures showed.

Japanese private-sector core machinery orders, a key gauge of corporate capital spending, rose by a smaller-than-expected 2.8 pc in October from September, a separate cabinet office report showed.

Market forecasts had been for an increase of about 5.7 pc after Sept's unexpected 7.4pc slump.

"This result (in machinery orders) will be a headwind for the BoJ as there is almost no concern over any overheating of capital expenditure," argued Morgan Stanley economist Takehiro Sato.—AFP