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

Tokyo

JAPAN'S government slashed its economic growth forecast for this year largely due to weaker exports, in a sign the protracted US-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 per cent 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 per cent growth. The government estimated 1.2 per cent 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 per cent 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 per cent, compared to 3.0 per cent 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 per cent, 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 per cent for this fiscal year and 0.8 per cent for the following year - remaining distant from the BOJ's 2 per cent target.

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