Japan’s economy likely to grow more slowly

Japan’s economy is likely to grow at a slower pace than previously thought throughout the rest of the fiscal year, a Reuters poll showed, as growing risks of a global economic slowdown and supply woes torment Japanese exporters.

Manufacturers in the world’s third-largest economy are susceptible to the gloomier growth outlook in major trading partners such as the United States and China that are stoking recession and stagflation fears worldwide.

Analysts, however, still projected Japan’s growth to stay positive throughout the fiscal year until next March, the poll showed, thanks to an expected recovery of consumption, which accounts for over half of the country’s gross domestic product.

The economy was projected to expand an annualised 3.1per cent this quarter, the median forecast of 36 economists in the July 4-15 poll showed, lower than 3.5per cent estimated in a June survey.

Economists in the poll downgraded growth estimates for the October-December and January-March quarters slightly as well, while cutting those for last quarter even sharper, to 3.2per cent from June’s 4.1per cent.

“The biggest factor behind the overall downgrade is the growing sense of a slowdown in the US economy,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence.

China’s zero-coronavirus policy could also prolong supply bottlenecks for Japanese exporters, she said.

Japan’s export-oriented manufacturers have been hit hard by a relentless rise in commodity prices after Russia’s invasion of Ukraine and Covid-19 lockdown measures in Chinese plants this year.

Analysts in the poll expected Japan’s industrial production to have contracted 3.8per cent in April-June from a year earlier, which will be followed by a meagre 2.2per cent recovery of output in July-September.

Domestically, the economy was likely to continue benefiting from a recovery in household spending on pent-up demand for services such as travel following the lifting of coronavirus curbs in March.

“Rising prices don’t seem to be pushing down private consumption now, though the impact could be more substantial if they linger,” said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.

A recent rise in coronavirus cases has added uncertainties to the outlook for consumption, he said.

The median estimate of economists in the poll showed Japan’s annual core consumer inflation likely reaching 2.4per cent in October-December and then aligning with the Bank of Japan’s 2.0per cent target early next year.

But nearly 90per cent of analysts said any unwinding of the BOJ’s ultra-easy policy will not happen until 2023 or later.

Asked which areas the government should focus on after the July 10 upper house election, which resulted in a convincing victory for Prime Minister Fumio Kishida’s ruling coalition, 19 of 27 economists, or 70per cent, said energy policy.