TOKYO, March 13: Japan appears headed for its first recession in over two decades judging by data released on Friday, a prospect that is likely to strengthen calls for the government to take decisive steps to jump-start the economy.Japan's economy shrank 0.2 per cent in the October-December quarter from the previous quarter, prompting the government to admit that its growth target of 0.1 per cent for the fiscal year ending on March 31 would be hard to achieve. "When looking at the October-December data, it seems quite difficult to achieve around 0.1 per cent growth this fiscal year," said Economic Planning Agency Vice Minister Shimpei Nukaya.
Although Nukaya said the economy was unlikely to worsen further, private economists said it was sure to show minus growth for fiscal 1997-98. Yasuhiko Ushikubo, an economist at the Industrial Bank of Japan (IBJ), said, "It will be impossible to achieve the government's growth target of 0.1 per cent for the fiscal year. A contraction of 0.4 or 0.5 per cent will bemore likely."
If Japan does slip into recession in 1997-98 it will be for the first time since the economy contracted 0.7 per cent in fiscal 1974-75. Economists said the outlook remained bleak, citing an absence of any bright signs.
Nukaya said consumption was likely to recover slightly, but economists disagreed. Matthew Poggi, an economist with Lehman Brothers, said, "In terms of a rebound, I have to disagree a bit with the head of the EPA. So far, I haven't really seen a rebound in consumption in the first quarter. We've had household spending and retail sales numbers and they really don't look much better than the first quarter of last year."
In January, the percentage of disposable income that was actually used for spending at wage-earning households fell to a record low. Economists also said the fallout from turmoil in Asian economies was likely to take its toll in the coming months.
"Given the weakness in Asia, I expect that it will have a significant negative impact on exports starting in thecurrent quarter," said Peter Morgan, a senior economist at HSBC Securities.
External demand, or net exports, made a 0.6 per cent contribution to October-December GDP while weak domestic demand slowed GDP by 0.8 per cent. Domestic demand similarly provided a negative contribution to the full 1997 GDP, the first time it has done so since 1974.
The further evidence of the economy's feebleness will fuel calls for Prime Minister Ryutaro Hashimoto to take steps, particularly fresh fiscal spending, to boost domestic demand. "The only thing that we can now look forward to is public works spending," said the IBJ's Ushikubo. A member of the ruling Liberal Democratic Party separately told Reuters Financial Television that the party is likely to propose an extra budget totalling 10 trillion yen ( in fiscal 1998-99, starting on April 1. Former transport Minister Takeo Hiranuma said the party is likely to propose an extra budget following passage of the regular budget for 1998/99, which is being discussed inparliament.
But he said the amount of fresh spending in the extra budget might be limited to 2 trillion to 3 trillion yen if it is crafted under the fiscal reform stance which the current party leadership has stuck to .so far, and urged tha the entire 10 trillion lyen be used for "fresh spending", such as for infrastructure projects.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
