Japan says economy could slow on weakening global demand

The government has slashed its economic growth forecast to 0.9 percent for 2019 as exports shrink due to trade wars.

    Japan's exports are expected to grow by 0.5 percent this year, down sharply from a 3.0 percent projection in the government's January forecast [Reuters]
    Japan's exports are expected to grow by 0.5 percent this year, down sharply from a 3.0 percent projection in the government's January forecast [Reuters]

    Japan's government slashed its economic growth forecast for this year largely due to weaker exports, in a sign the protracted United States-China trade war is taking a bigger toll on the world's third-largest economy.

    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 percent in price-adjusted real terms in the fiscal year ending 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 percent growth. The government estimated 1.2 percent 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 percent in the current fiscal year and 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 percent, compared to three percent in the previous assessment in January.

    This would make export growth for the current fiscal year the slowest since fiscal 2012, when they contracted by 1.7 percent, 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 which concludes on Tuesday.

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

    Japan's economy expanded at an annualised 2.2 percent 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 percent from 8 percent in October could have on private consumption.

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

    SOURCE: Reuters news agency