Japan’s third-quarter growth forecast slashed as new pandemic brakes strike: Reuters poll
TOKYO (Reuters) – Japan’s economy to grow at a slower rate than expected in the third quarter, as new emergency coronavirus restrictions in Tokyo, extending through to the Olympics, weigh on consumption, according to a Reuters poll.
But analysts saw growth pick up in the fourth quarter, with a majority expecting a “strong” or “very strong” surge in pent-up demand in the second half, offering signs of an improving outlook.
The world’s third-largest economy is expected to grow 4.2% annualized this quarter, according to a poll of around 40 economists conducted between July 2 and July 13, down from a 4.8% expansion expected last month . Economists also reduced annualized growth for the second quarter to 0.4% from 0.5%.
“The state of emergency that has started in Tokyo is likely to have a huge impact on consumption,” said Nobuyasu Atago, chief economist at Ichiyoshi Securities.
“It is likely that pent-up demand will materialize later than expected. A recovery in consumption expected in July-September is postponed to the fourth quarter.
The government this week introduced a new state of emergency in Tokyo that is to last until August 22 – so July 23-August. 8 Olympics – fueling fears of a prolonged blow to bars and restaurants, which are urged to operate with shorter hours.
The Japanese economy has struggled to stage a convincing recovery this year due to the heavy toll the health crisis is taking on domestic demand, especially for services such as travel, dining and other leisure activities. .
The government will release its estimate of the second quarter gross domestic product on August 16, after the economy experienced an annualized contraction of 3.9% during the January-March period.
The poll’s median forecast showed the economy would experience 4.6% annualized growth in the fourth quarter, slightly higher than last month’s projection of a 4.4% expansion.
The forecast for the current fiscal year and the next fiscal year remained unchanged at 3.6% and 2.6% growth, respectively.
Consumer staples, which exclude volatile fresh food prices, will rise only 0.3% this fiscal year, slightly up from the 0.2% forecast last month, according to the poll.
REBOUND IN EXPENDITURE
The risks of the health crisis to the economy have prompted lawmakers in the ruling party to call for additional stimulus spending to support growth.
Even with the late start of the vaccination rollout in Japan, all analysts have pointed to a resurgence in infections as the biggest risk to the Japanese economy this year.
But in a welcome sign, the poll’s projections showed that nearly 60% of analysts expected the Japanese economy to boost this year from pent-up demand and accumulated savings during the COVID crisis. 19 either “strong” or “very strong”.
That was more than the 40% of analysts who predicted it would be “weak” and the only forecaster who said it would be “very weak”.
“It is likely that the rebound (in consumption) will be quite strong from September to November,” said Masamichi Adachi, chief economist for Japan at UBS Securities, while adding that consumption may not increase much more. next year.
Respondents unanimously said the Bank of Japan (BOJ) will keep its short-term interest rate target at -0.1% and the 10-year bond yield target around 0% when of its policy meeting on July 15 and 16.
Nearly 90% of analysts in the poll expected the BOJ’s next move to be an unwinding of the stimulus measures, although they are divided on what the central bank could do if it were to eventually tighten its policy framework. .
The most widely expected options were for the BOJ to change its forecast, raise the 10-year yield target or abandon its negative rate policy and raise short-term interest rates, according to the survey, unchanged from the month. latest.
Reporting by Daniel Leussink; Additional reporting by Kaori Kaneko; Poll by Md. Manzer Hussain and Sujith Pai in Bengaluru; Editing by Ana Nicolaci da Costa