Tokyo, Dec. 20 (Bloomberg) -- Japan's economy shrank for a second straight month in October as demand for services slumped, a sign the world's second-biggest economy may contract in the fourth quarter. The all-industry activity index, used as a proxy for gross domestic product, fell 0.3 percent, the Ministry of Economy, Trade and Industry said. Economists expected a 0.2 percent drop, according to the median of 16 forecasts in a Bloomberg News survey, after a 0.2 percent drop in September. Japanese exports, which have been driving the recovery from the nation's third recession in a decade, fell in four of the last five months, slowing economic growth. At home, retailers, restaurants and other service providers are being pinched by consumers who are curbing spending as unemployment remains at a record 5.5 percent. ``The chances are a bit higher that the economy will probably contract from this quarter,'' said Yasukazu Shimizu, a senior economist at Aozora Bank Ltd. ``Production is starting to weaken now and that's starting to affect the non-manufacturing sector.''
The tertiary activity index, which measures business at retailers, utilities and other service companies and accounts for 60 percent of the all-industry index, fell 0.2 percent from September, the second straight decline. Slowing demand at retailers, hotels and amusement parks led the drop. Yesterday, the government said the jobless rate may rise to a record 5.6 percent in the fiscal year starting April 1, and economic growth may slow to 0.6 percent. Industrial production will rise 2 percent, the report said, slower than the 3.1 percent forecast this fiscal year. ``The domestic economy is too weak to sustain a recovery,'' said Takahide Kiuchi, economist at Nomura Research Institute. The Topix Services Index, which tracks shares of 108 companies which provide software, security, data and other services, has lost more than a third of its value this year. The all-industry index adds industrial production, construction, agriculture and other components to the tertiary index. It rose 1 percent from a year ago, the fourth straight gain, while the tertiary was unchanged from a year ago. //quote.bloomberg.com