Japan forecasts zero growth next fiscal year

Reuters

Published: December 19, 2008

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TOKYO: The Japanese economy will post zero growth in price-adjusted real terms in the fiscal year starting in April, supported by a series of stimulus packages announced this year, the government said in annual projections Friday.

Its forecast contrasted with the much bleaker outlook of private-sector economists, who expect the deepening global economic malaise to deal a blow to the export-oriented economy.

"In fiscal 2009-10, the situation for both domestic and external demand will remain severe as the global slowdown continues," the government said in its projections.

"But the economy can be expected to shrug off the weakness in the second half of the fiscal year with a recovery in private demand in addition to the positive effects of economic measures."

Tokyo warned, however, that the recovery in the world's second-largest economy may be delayed if global economic and financial conditions deteriorate further.

Its official forecast for nominal growth next fiscal year, which Japan uses to estimate tax revenues when drafting its budget plan, was 0.1 percent, up from the 1.3 percent contraction it expects for the current fiscal year.

In real terms, the government expects a 0.8 percent contraction this fiscal year.

An official at the Cabinet Office, which compiles the forecast, said the government's economic stimulus packages, including a ¥2 trillion, or $22.5 billion, payout to individuals, will boost the next fiscal year's growth by one percentage point.

Last week, Prime Minister Taro Aso announced the government was expanding a stimulus package, which would bring Japan's spending to revive the economy to ¥12 trillion yen.

The government forecast that the public-sector demand contribution to real growth in fiscal 2009-2010 would be 0.6 percentage point, which would be the highest level in a decade and compares with minus 0.1 percentage point seen for 2008-2009.

External demand, meanwhile, is expected to cut 0.3 percentage point off the growth rate, compared with a slightly positive contribution of 0.2 percentage point seen for this fiscal year.

Japan has already been hit by a rapid fall in overseas demand, prompting companies to cut production at an unprecedented pace.

The government forecast industrial production would fall 4.8 percent next fiscal year, though that was still better than a 5.5 percent fall expected for this year.

The outlook for job conditions was also bleak as the corporate sector, which had been the engine of growth, has lost steam. The government forecast that the jobless rate in fiscal 2009-200 would rise to 4.7 percent from 4.2 percent for fiscal 2008-2009.

The government, meanwhile, forecast a 0.4 percent fall in the overall consumer price index next fiscal year, mainly because of oil prices, which have dived from record highs this summer. Consumer inflation for the current fiscal year is expected at 1.3 percent, the highest in 16 years.

Japan's gross domestic product has fallen in the second and third quarters of this year. Many economists forecast two more quarters of contraction, which would mark a postwar-record of four straight quarters of decline.

A Reuters poll of 20 economists earlier this month produced a median forecast for a 0.7 percent contraction next fiscal year, slightly better than a 0.9 percent fall seen for the current fiscal year.