Japan cuts GDP, CPI forecasts on disasters and trade war
TOKYO: Japan’s government revised down its forecasts for economic growth and consumer prices for the current and next fiscal years as natural disasters and weakening export demand weighed on the economy, the Cabinet Office said yesterday.
The forecast cuts follow disappointing data on quarterly gross domestic product and machinery orders, highlighting the growing downside risks posed by a trade war between the United States and China.
The government will use the forecasts to finalise the state budget for the next fiscal year starting in April, which could present policymakers with a host of challenges as they prepare to raise the nationwide sales tax.
Japan’s economy will grow 0.9 per cent in fiscal 2018, which ends in March, the Cabinet Office said. That is down from its previous projection of 1.5 per cent growth.
In fiscal 2019 the economy will expand 1.3 per cent, also down from the previous forecast of 1.5 per cent growth.
Overseas demand will not contribute to growth either in the current or the following fiscal year due to a slowdown in China’s economy and weak demand for electronic parts in Asia, a Cabinet Office official said.
Capital expenditure is expected to rise 3.6 per cent in fiscal 2018 and then slow to 2.7 per cent growth in fiscal 2019, partly because companies are cautious due to global trade friction, the official also said.
Overall consumer prices are expected to rise 1.0 per cent this fiscal year, down from a 1.1 per cent increase expected previously.
In fiscal 2019, overall prices will rise 1.1 per cent, less than the previous forecast of a 1.5 per cent increase.
Private consumption is expected to expand 0.7 per cent this fiscal year and then accelerate to 1.2 per cent growth in fiscal 2019, as consumers shake off the impact of a strong earthquake and heavy floods in September.
The government will raise the nationwide sales tax to 10 per cent from 8 per cent in October next year to help offset rising welfare costs.
The government has already planned for tax breaks and stimulus spending to offset any negative impact on consumer spending.
This stimulus, combined with an expected improvement in workers’ wages, should prevent consumer spending from weakening, according to the official.
Japan’s economy posted its biggest contraction in four years in July- September due to a fall in capital expenditure.
The economy likely resumed expansion in the current quarter, but a row between Washington and Beijing over tariffs and trade policy is a threat to Japan’s exportfocused economy. — Reuters