By Stanley White and Tetsushi Kajimoto TOKYO (Reuters) - A year after Prime Minister Shinzo Abe took financial markets by storm with promises to end two decades of deflation and tepid growth, the economy is expected to slow sharply, highlighting the challenges facing "Abenomics" in ensuring a durable recovery. Growth in the world's third-biggest economy decelerated in the third quarter after leading the Group of Seven industrial powers in the first half of the year, as capital spending, personal consumption and exports moderated, a Reuters survey indicates. Gross domestic product data at 8:50 a.m. on Thursday (2350 GMT / 18:50 EST on Wednesday) is set to highlight the early successes of Abe's aggressive monetary and fiscal easing in buoying exports and consumer spending. But it will also underscore the difficulties of translating the feel-good factor surrounding these successes into increases in business investment or higher wages, which would indicate corporate Japan sees a longer-term pick up in the economy. GDP expanded at an annualized clip of 1.6 percent in the July-September quarter, the Reuters survey of economists shows, a reasonable showing but well below the April-June rate of 2.6 percent and the first quarter's 3.8 percent. Japan's economy has improved dramatically since November 14, 2012, when Abe's unpopular predecessor, Toshihiko Noda, announced snap elections. That vaulted Abe into pole position and prompted investors to price in the effects of his promises of massive government debt purchases by the central bank, hefty government spending and steps to bolster longer-term growth. Tokyo shares are up 68 percent in that 12 months and the yen has slid 19 percent, helping Japan's exporters and creating a wealth effect that has altered domestic and global psychology about Japan. But those market gains essentially stalled in May, and skepticism is growing that Abe can deliver the tough decisions that would set Japan's economy on a more sustainable growth path; for example, by letting companies fire workers more freely to open up a new dynamism in the sclerotic labor market. Growth will quickly rebound as shoppers rush to spend before a national sales tax is increased to 8 percent from 5 percent in April, economists say. But Abenomics is struggling to gain traction on key areas that would indicate longer-lasting changes to the economy, such as capital spending and wage growth. Core machinery orders, a key predictor of spending on factories, equipment and software, fell more than expected in September, data showed on Wednesday. A Bank of Japan (BOJ) policymaker warned of headwinds from soft overseas growth, underscoring the challenges facing Abenomics. The Reuters survey found that capital expenditure also likely slowed in the third quarter. Still, a tighter labor market and signs from a few major companies of rising wages should support consumer spending in coming quarters, boding well for Abe's push to foster self-sustaining growth and end 15 years of mild deflation. "This is more an adjustment in speed, because gains in consumer spending in the first half of the year were not sustainable," said Yoshiki Shinke, chief economist at Dai-Ichi Life Research Institute. "But there is no reason to expect consumption to weaken any further. Growth can quickly bounce back." Private consumption, which makes up about 60 percent of the economy, was seen growing 0.1 percent from the previous quarter, according to the poll. That would mark a sharp slowdown from 0.7 percent growth in the previous quarter as falls in Japanese shares weighed on consumer sentiment. Some individual investors also cut back on spending after cashing in on a stock market rally earlier this year to buy luxury goods. Other data, such as a rise in job availability to the highest in more than five years and rising wages in some industries, suggests consumer spending should pick up pace again. Export demand is expected have taken 0.4 percentage point from growth over July-September, following a 0.2 percentage point contribution in the previous quarter, the poll showed. Exports to Southeast Asia weakened as large capital outflows out of those countries slowed growth. However, economists expect Japan's exports to improve going into next year as overseas economies stabilize. The BOJ has warned that overseas economies are a little weaker than it had expected, but the central bank raised its GDP forecast for next fiscal year as the government is planning a 5 trillion yen ($51 billion) stimulus package to offset the impact of the sales tax hike. The BOJ has stood pat on monetary policy since it started radically expanding its quantitative easing in April, which is aimed at achieving a 2 percent inflation target. Abe's plan is to combine fiscal spending and economic reforms with BOJ monetary easing to pull Japan out of a decades-long economic slump. ($1=98.1100 Japanese yen) (Writing by William Mallard; Editing by Neil Fullick)