Struggling economy to crash further: poll

Yoko Nishikawa

Friday, April 20, 2001 at 19:00 JST TOKYO — The struggling economy faces lean times ahead with exports and production slumping and growth of below 1% for fiscal 2001/02, a Reuters survey suggested on Friday.

A poll of 30 economists produced a median forecast of 0.7% growth in gross domestic product for the current fiscal year that began in April, with predictions ranging from a 1.8% rise to a 0.2% decline.

All but two economists said the economy would grow in 2001/02, but most forecasts were well below a government target for 1.7% growth.

Only three expected growth to outpace that of last year.

ABN AMRO economist Vincent Musumeci said he expected growth to slow from last year, when solid exports lent some support to the world's second-biggest economy.

"We will get a reverse effect of this in 2001 as external demand has been declining as we have seen in terms of export volume," Musumeci said.

"We have some considerable way to go until demand stabilises in the US and the global economy as a whole."

Japan's GDP for the final quarter of fiscal 2000/01 will likely be released in June.

The economists' median forecast for GDP in fiscal 2000/01 was growth of 1.3%.

Consumer prices were expected to continue falling from levels a year earlier for at least the next two years, implying no major change in monetary policy during that period, the economists said.

The Bank of Japan has pledged to keep its ultra-loose monetary policy in place until deflation is licked.

That means waiting until the core nationwide consumer price index, a key measure of retail inflation, stabilises at zero percent or above.

According to the poll, core nationwide consumer prices will likely fall 0.5% in the current fiscal year.

The BOJ last month took the unprecedented step of adopting a quantitative easing policy targeting reserves instead of interest rates, a move tantamount to a return to free money.

The latest government data released on Thursday showed that Japan's export volume dipped from the previous year for the third straight month in March, registering a decline of 3.1%.

Some economists said corporate capital spending, which had been one bright spot for Japan's struggling economy, will peak out soon and crimp economic growth.

Industrial output in particular was seen doing a U-turn.

Economists expect industrial production to fall 0.9% in the current fiscal year, a sharp reversal from their forecast of a 4.3% rise in the year that ended in March.

But some optimists among the bunch said slowing exports would affect only limited industries and the US economy would recover later this year.

"Only limited sectors such as manufacturing and information technology-related industries will be affected by falling exports, and in terms of Japan's macroeconomy, the impact won't be big," said Yunosuke Ikeda, economist at Nomura Research Institute.

Economists saw January-March GDP, due out in June, growing 0.5%from the previous quarter.

They cited a temporary boost in private consumption — the lion's share of the economy — from sales of household appliances such as TVs and washing machines ahead of the introduction of a new recycling law in April that puts a greater financial burden on consumers.

Support provided by public-works spending included in a government economic stimulus package released late last year will also help boost growth in the January-March quarter, economists said.

Both factors would have little or no impact in following quarters, they said.

Economists expect a tepid 0.1% growth in the April-June quarter and a 0.3% contraction in July-September. (Reuters News)

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-- Martin Thompson (mthom1927@aol.com), April 20, 2001