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Japan’s economy likely to stall for rest of 2012

September 14, 2012

TOKYO: Japan’s export-reliant economy will likely stall for the rest of 2012 as it struggles due to Europe’s relentless debt crisis, a subdued Chinese economy and a persistently strong yen, a Reuters poll predicted today.

A worse-than-expected growth rate in the April-June quarter further prompted analysts to cut their forecasts for the second half of this year, taking them to levels not seen since polling on that period began in February 2011.

The economy will probably flatline this quarter before growing a mere 0.1% in the next, according to the poll of more than 20 economists conducted Sept 10-13.

Sixteen of the 18 common participants between the August and September polls scaled back their growth forecasts for the fiscal year ending in March 2013.

The Japanese economy is now expected to grow at 1.8% this fiscal year, which is not only lower than last month’s 2.2% prediction but is also less than projections made by the government and the Bank of Japan.

“There is a risk the economy in July-September will contract, dragged down by a weak global economy,” said Yoshimasa Maruyama, chief economist at Itochu Economic Research Institute.

“But I expect the economy in China and the United States will pick up later this year, which would also help Japan’s exports from early next year although it won’t push up the economy strongly.”

Despite consistently downgrading their growth outlook for the world’s third-largest economy, survey participants have maintained the chance Japan will have a recession in the next 12 months at 30%.

The central bank is expected to revise its economic assessment at its two-day policy meeting ending next Wednesday and warn of heightened risks of a prolonged global economic slowdown.

“Consumer spending overall is weak, reflecting declines in summer bonus and overtime payments. The income situation is bleak,” Takeshi Minami, chief economist at Norinchukin Research Institute.

“Also it probably takes more time to see a full-fledged reconstruction demand and its spillover effect to a wider economy.”

Demand spurred by spending on reconstruction following last year’s earthquake and tsunami will likely continue to underpin the economy although it won’t give much of a lift, analysts said.

For the fiscal year ending March 2014, the economy is expected to show a 1.5% rise, slightly lower than the 1.6% in the previous survey, boosted by a probable surge in consumer spending in anticipation of the proposed sales tax hike in April 2014.

A separate Reuters poll showed an increasing reluctance among forecasters to make big bets on a depreciation in the yen, having been burned by the currency’s relentless strength in recent years on safe-haven bids.

So on top of Japan taking a hit in exports as major trading partners such as China and Europe falter, a strong yen will further hurt this export-led economy by making Japanese goods less competitive.

The survey also showed consumer prices will stay low and the risk of deflation will plague the economy this fiscal year and the next. Core consumer prices (CPI) are expected to be flat for this fiscal year and will rise 0.2% for the next, largely in line with the previous survey and a far below the Bank of Japan’s 1% goal.

– Reuters


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