/www.bloomberg.com/ By Yoshiko Matsushita
Tokyo, Nov. 11 (Bloomberg) -- Japan's economic growth probably slowed in the third quarter amid waning U.S. demand for goods from computer chips to video games, suggesting the world's second-biggest economy may be headed for its fourth recession in a decade.
Growth slowed to an annual 1.8 percent pace in the third quarter from 2.6 percent in the second, according to the median forecast of 22 economists in a Bloomberg News survey. The economy probably grew 0.5 percent from the second quarter, seasonally adjusted, after growing 0.6 percent in the period to June 30.
Tokyo Electron Ltd., Sony Corp. and other manufacturers are paring sales estimates as demand cools from the U.S., Japan's biggest overseas market. Lower sales are prompting companies to curb investment and lay off workers, hurting the consumer spending that makes up more than half the economy. The report will be released at 8:50 a.m. Japan time on Wednesday.
``We cut our sales outlook because of uncertainty over consumer demand, mainly in the U.S.,'' said Satoshi Fukuoka, a spokesman for Sony, maker of the PlayStation 2 video-game console. ``But uncertainty of consumer demand in Japan is also one of the factors.''
Exports accounted for half of Japan's growth in the second quarter, the first expansion in more than a year. Overseas shipments fell in September for a fourth month and will probably extend their slide into the final quarter of the year, economists said.
``This will be the shortest streak of recovery in the post- war period,'' said Takehiro Sato, an economist at Morgan Stanley Japan Ltd. ``It's possible that recovery may end'' just after the third quarter, he said.
The shortest recovery so far has been the 21-month expansion from January 1999 through October 2000. The current recovery, which started last November, may have ended in September or October, Sato said.
Bonds Gain
Japanese government bonds have been rising in anticipation of slowing growth, which makes debt more attractive relative to stocks and reduces the chances of inflation. Ten-year bond yields last week fell to 0.955 percent, the lowest since November 1998.
The No. 243 bond, which carries a 1.1 percent coupon and matures in 2012, rose 0.181 to 101.166 as of 10:18 a.m. in Tokyo. Its yield fell 2 basis points to 0.970 percent. A basis point is 0.01 percentage point.
Japan's economy has been in a slump since the real-estate bubble burst in the early 1990s, leaving banks saddled with bad loans that have since ballooned to an estimated 52.4 trillion yen ($433 billion.) That has made banks reluctant to lend, starving the economy of the fresh credit it needs to grow. Bank lending fell last month, a government report today showed, extending a slide that started six years ago.
The government of Prime Minister Junichiro Koizumi is now pressing banks to clear the bad loans so they can start lending again. That may dent growth before it brings the economy back to health as banks cut off delinquent borrowers, driving them into bankruptcy.
Falling Demand
Exports, one of the main drivers of growth, will probably extend their slump. Last week's interest-rate cut by the Federal Reserve suggests that the U.S. economy will slow amid rising unemployment and slumping consumer confidence.
U.S. growth will fall to a 2.2 percent annual rate this quarter from an expected 3.6 percent pace in the third quarter, according to a consensus estimate of economists surveyed by Blue Chip Economic Indicators.
That will hurt demand for products such as Sony's video games. Concerned about flagging audio-visual sales in the second half, Sony last month cut its full-year revenue forecast by 100 billion yen to 7.6 trillion yen.
Tokyo Electron, the world's No. 2 supplier of chipmaking equipment, said fiscal second-quarter profit plunged 73 percent because chipmakers cut spending. The company slashed its full-year profit forecast 75 percent.
``It's clear Japan cannot rely on exports anymore,'' said Hitoshi Asaoka, an economist at Mitsubishi Research Institute.
Job Cuts
Slumping exports are prompting companies to cut workers. Advantest Corp., the world's biggest maker of memory-chip testing equipment, said last month it would fire 600 people after announcing a fiscal first-half loss.
Consumer spending, which economists said probably grew in the third quarter, will be shaken by layoffs and slumping wages, hurting the economy in the final three months of the year.
Japan's unemployment rate held at 5.4 percent for a fifth month in September, just shy of December's record 5.5 percent. Cash earnings of employees at companies with five or more workers fell 1 percent in September from a year earlier, following a 3 percent decline in August.
Capital spending, which accounts for about 15 percent of the economy, is also slowing, economists said, as manufactures cut back on investment in factories and machinery in anticipation of flagging sales. Japanese companies cut orders for machinery by 13.6 percent in August, the biggest drop in five years.