A recent sharp deterioration in U.S.-China relations could complicate the outlook for Japan economic growth the rest of the year, as the world’s two largest economies disagree on issues such as trade, technology and the pandemic.
Asked how the conflict between the two nations will affect Japan’s economy, about 90% of economists surveyed by Reuters said it would have a negative impact.
Over 80% of respondents also said Japanese companies would face adverse effects if Washington and Beijing move toward creating their own economic zones, which would mark a retreat of globalization, Reuters said.
“Economic blocs led by those two countries, or de-globalization, would lower global productivity growth. That would have a negative impact on Japan’s potential growth and Japanese firms’ productivity growth,” said Hiroshi Ugai, chief economist at JPMorgan Securities Japan.
Pandemic to Hit Japan’s Economy More than Expected
Japan’s economy will contract more than previously expected and suffer mild deflation during the current fiscal year, analysts predict, underscoring the fragile nature of the recovery from the devastating coronavirus pandemic, Reuters said.
“Economic activity will continue to face restrictions from social distancing measures” needed to prevent the spread of the virus, said Taro Saito, executive research fellow at NLI Research Institute.
“Japan’s economy will likely rebound next fiscal year but won’t recoup the huge losses incurred this year,” he said.
Economy Will Shrink
The economy is forecast to shrink 5.6% in the current fiscal year next March, the poll of 32 economists showed, more than 5.3% contraction projected last month. In a worst case scenario it will shrink 8.0%.
The downgrade came as many analysts revised their forecasts for April-June gross domestic product (GDP) to a 27% contraction – last month’s worst case forecast – from a nearly 24% drop projected in July.
Japan’s economy will grow just 3.3% in the following year beginning in April 2021, the August 4-13 poll showed, unchanged from the previous poll in July.
Deflation Returns
Core consumer prices which exclude volatile fresh food but includes energy costs, will fall 0.3% this fiscal year and rebound just 0.2% next year, according to the poll.
With the economy in deflation and its 2% inflation target proving increasingly elusive, the Bank of Japan’s next move will be an expansion of stimulus, said a majority of those polled.