By Tetsushi Kajimoto and Minami Funakoshi
TOKYO (Reuters) - Japan's economic growth handily beat expectations in the July-September period, expanding for a third straight quarter as exports recovered, but weak domestic activity cast doubt on hopes for a sustainable economic recovery.
Government data issued on Monday underscored a potentially fragile export-reliant economic recovery just as Republican Donald Trump's shock victory in the U.S. presidential election was adding to uncertainty over the global economic outlook.
The economy expanded by an annualised 2.2 percent in the third quarter, faster than the 0.9 percent increase markets had expected, following a 0.7 percent increase in April-June, Cabinet Office data showed on Monday.
It marked the third straight quarter of expansion.
"Exports recovered, but private consumption and capital expenditure are weak. The economy isn't as strong as the 2.2 percent makes it seem," said Hidenobu Tokuda, senior economist at Mizuho Research Institute.
"There are risks from China and Trump's trade policies. We need to continue to pay attention to downside risks," Tokuda said, echoing the concerns of policymakers.
The preliminary reading for gross domestic product (GDP) translated into a quarterly expansion of 0.5 percent in the third quarter, versus a 0.2 percent gain expected by economists.
External demand - or exports minus imports - added 0.5 percentage point to GDP, due to a bounce in exports from the prior quarter, and falling imports caused by yen gains, oil price declines and weak domestic demand.
It marked the biggest contribution since April-June 2014 as exports grew 2.0 percent, the fastest gain in a year, helped by potentially one-off factors such as a boost in shipments of smartphone parts.
Private consumption, which accounts for roughly 60 percent of GDP, rose 0.1 percent, unchanged from the second quarter, partly as typhoons and bad weather undermined consumer spending. It adds to concerns that the benefits of Prime Minister Shinzo Abe's Abenomics stimulus drive are yet to spread to households - as seen in tepid annual wage rises.
"Some weakness can be seen in the current economy, but employment and wages are continuing to improve and moderate economic recovery is continuing," Economy Minister Nobuteru Ishihara said in a statement.
"Economic downturns in China and emerging markets in Asia are downside risks to our country's economy. We need to pay attention to these risks as well as to uncertainties in the global economy and fluctuations in financial markets."
Capital expenditure, a key component of GDP, was flat, following a 0.1 percent decline in the second quarter, with worries about the global outlook and renewed yen gains weighing on business investment.
Underlining flagging inflation, the GDP deflator fell 0.1 percent in July-September from the same quarter a year ago, the first annual decline since October-December 2013, the data showed.
(Reporting by Tetsushi Kajimoto and Funami Finukoshi; Additional reporting by Stanley White; Editing by Eric Meijer)
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