TOKYO, Nov 5 (Reuters) – Japan’s household spending fell in September as consumers remained cautious about COVID-19, heightening the risk that the world’s third-largest economy contracted in the third quarter.

The data underscored the need for policymakers to shore up domestic consumption as the global supply crunch hits the export-reliant economy.

Spending fell 1.9% year-on-year in September, after a 3.0% decrease in August, government data showed on Friday. It was a better reading than a median market forecast for a 3.9% slip in a Reuters poll.

However, in seasonally adjusted month-on-month terms, spending jumped 5.0% in September, marking the first increase in five months, beating expectations for 2.8% growth.

Nationwide coronavirus cases decreased in September after hitting record levels in late August. The government lifted some COVID-19 curbs by end-September, but restrictions such as those on restaurants’ operating hours and large-scale events remained in place. read more

An increasing number of analysts expect the economy to have contracted or remained unchanged in the third-quarter, due in part to disappointing industrial output figures, which kept falling on car production cuts. read more

Beyond carmakers, supply shortages in semiconductors and other components produced in coronavirus-hit Southeast Asia have caused a ripple effect in other parts of the Japanese economy. Growth in exports has slowed while private consumption stagnated because of car sales slumps. read more

“Japan’s July-September gross domestic product (GDP) will post a contraction due to weakness not only in consumption but also in exports and capex,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

Compared with other major economies such as the United States and Europe, “Japan’s growth lag will become fairly evident,” Minami added.

The government is due to release a preliminary estimate for GDP on Nov. 15. read more

To prop up Japan’s relatively tepid economic recovery, Prime Minister Fumio Kishida pledged earlier this week to compile a “large-scale” stimulus package in mid-November. read more

Kishida’s government and ruling coalition have agreed to provide a cash payout of 100,000 yen ($878.58) to all children up to age 18 as part of the stimulus package, the Yomiuri newspaper reported on Friday. read more

($1 = 113.8200 yen)

Reporting by Kantaro Komiya; Editing by Sam Holmes and Richard Pullin

Our Standards: The Thomson Reuters Trust Principles.