By Kaori Kaneko
TOKYO (Reuters) - Japan's economy is expected to have contracted more sharply initially estimated in the third quarter, with analysts in a Reuters poll forecasting a steep drop in capital spending in a sign of rising headwinds in 2019 as global demand ebbs.
The poll of 16 economists predicted the world's third-biggest economy to have shrunk an annualised 1.9 percent in July-September, worse than the preliminary reading of a 1.2 percent contraction.
That would translate into 0.5 percent quarter-on-quarter fall in gross domestic product, compared with the initial estimate of a 0.3 percent decline, the poll showed.
The finalised data is set to confirm that the economy was hobbled by a series typhoons, a huge earthquake and slow external demand.
And while analysts expect a rebound in the current quarter, a weakening external environment points to a challenging 2019, as export-reliant Japan struggles to build momentum in the face of cooling global growth, trade frictions and a slowdown in corporate profits.
"There is a high possibility that the economy will grow at relatively high pace in October-December led by production recovery," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute in his report.
"But there is no doubt that the economy is loosing momentum compared with last year because of weak exports."
Worryingly, the poll predicted capital expenditure to have slumped 1.6 percent for the quarter, the fastest fall since 2014 and significantly down from the 0.2 percent decline in the preliminary data.
Analysts say companies are expected to invest in replacing ageing equipments and boost spending to cope with labour shortages but the pace of growth in capital spending will likely be modest.
There are already signs the China-U.S. trade row is shaking up global supply chains, and the worry is that Japan's exporters will be caught in the cross fire in a blow to its economy.
While China expressed confidence on Wednesday that it can reach a trade deal with the United States, there is trepidation among global investors that both sides won't be able to bridge their differences to secure a durable agreement.
President Donald Trump has already warned that he would revert to more tariffs if the two sides cannot resolve their differences.
The Cabinet Office will announce revised GDP data at 8:50 a.m. on Monday Dec. 10 Japan time (2350 GMT on Dec. 9).
(Reporting by Kaori Kaneko; Editing by Shri Navaratnam)