The third largest economy in the world, Japan’s growth rate has shrunk to its lowest point in five years. This comes at a time when the Prime Minister of the country, Shinzo Abe, is looking for ways to direct the economy in the aftermath of the hike in sales tax.

The country’s Gross Domestic Product (GDP) has shrunk at an annualized rate of 7.1 percentage points in the last three months from June. The Cabinet office released these numbers in Tokyo. An independent survey conducted through a group of 25 economists has found a similar percentage drop of seven points.

Tax hike blow

Sales tax was increased in April of this year and its lasting effects have spilled over into this quarter, as well. The worst hit sectors through June was house hold spending and retail sales. The Government hinted last week that it was willing to help boost stimulus so that it can weather further increase in the taxes charged, planned for October next year. Minoru Nogimori, economist—Nomura Securities of Tokyo said that it has become increasingly difficult to predict whether or not Prime Minister Abe will go to ten percent with the tax, and the decision will not be easy as the state of the economy at present is not in a favorable position.

Index of shares on The Topix grew 0.2 percent and the Yen (JPY) rose 0.1 percent, reaching 105.02 for every dollar (USD).

Investments down

Capital Investment of most companies has dropped over five percent when compared to the last quarter; this is nearly double the initial expectations that estimated only a decline of 2.5 %. Consumption, on the other hand, was noted to have declined by a similar amount, totaling 5.1, exceeding the initial value reading of 5%.

Large corporations including Honda Motor Co. (NYSE: HMC), Japan’s third largest in the automobile sector, have made plans to cut the capital outlays by nearly 10% by the end of the fiscal year. DOCOMO Inc., the largest telecommunications provider in the country, has declared that they expect a drop of spending by nearly 2%. This economic weakness quickly followed a surge of spending and retail sales that happened early this year before the increased sales tax took effect. There was a rush that saw both companies and individual customers purchasing before the taxes were enforced in the end of March.