July 29, 2019 / 8:23 AM / a month ago

Japan says GDP growth could slow to 0.9% on weakening global demand

TOKYO (Reuters) - Japan’s government slashed its economic growth forecast for this year largely due to weaker exports, in a sign the protracted U.S.-China trade war is taking a bigger toll on the world’s third-largest economy.

FILE PHOTO - High-rise buildings are seen during sunset in Tokyo, Japan, March 7, 2017. Picture taken March 7, 2017. REUTERS/Toru Hanai

But the forecast, which serves as a basis for compiling the state budget and the government’s fiscal policy, was still nearly twice as high as private-sector projections.

The economy is now expected to expand 0.9% in price-adjusted real terms in the fiscal year ending in March 2020, according to the Cabinet Office’s projections, presented at the Council on Economic and Fiscal Policy - the government’s top economic panel.

That marked a downgrade from the government’s previous forecast of 1.3% growth. The government estimated 1.2% growth for the following fiscal year starting April 2020.

The government’s growth projections are more bullish than those by the private sector.

Market economists expect the economy to grow just 0.5% in the current fiscal year and in fiscal 2020, the Cabinet Office said, due in part to contracting exports and the impact from a planned sales tax hike in October.

The downgrade largely stemmed from a slowdown in exports, which the government expects to grow just 0.5%, compared to 3.0% in the previous assessment in January.

This would make export growth for the current fiscal year the slowest since fiscal 2012, when they contracted with 1.7%, according to a Cabinet Office official.

But the government saw the weakening exports being offset by robust corporate investment and private spending.

The government’s projections come ahead of the Bank of Japan’s quarterly review of its forecasts, to be released after its two-day policy meeting that concludes on Tuesday.

The Cabinet Office projected overall consumer inflation, which includes volatile fresh food and energy costs, at 0.7% for this fiscal year and 0.8% for the following year - remaining distant from the BOJ’s 2% target.

Japan’s economy expanded at an annualised 2.2% in the first quarter but many analysts predict growth will slow in the coming months due to the increasing external pressures.

Overhanging the outlook are a slowdown in China’s economy and rising global trade protectionism. Also of concern is the impact a scheduled sales tax to 10% from 8% in October could have on private consumption.

For fiscal 2019 and fiscal 2020, the Cabinet Office forecast nominal economic growth of 1.7% and 2.0%, respectively. Higher nominal growth estimates point to government expectations for greater tax revenue.

Reporting by Daniel Leussink; Editing by Kim Coghill

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