Japanese Economy Likely To Grow More Slowly Than Expected

According to a recent poll, the economy in Japan is expected to grow at a pace slower than what had been expected previously. This is because Japanese exporters have come under pressure because of supply chain bottlenecks and a slowdown in the global economy.

Growth outlook

Manufacturers in the third largest economy in the world have become vulnerable to the gloomy growth outlook that has been affecting its trading partners, such as China and the United States. These conditions are stoking fears of stagflation and an economic recession all over the world.

However, analysts had still estimated that Japan would continue to see positive growth throughout the fiscal year ending next March. This was because they expected recovery of consumption, as this contributes almost half of the gross domestic product of Japan.

The growth of the economy expected in this quarter had been around 3.1%, which was lower than the estimates of 3.5% in June. However, growth estimates were also reduced for the October to December and the January to March quarters and there was an even sharper decline for the last quarter from 4.1% in June to 3.2% now.

Reasons for slowdown

According to analysts, the fact that the economy of the United States is slowing down has resulted in an overall downgrade of the Japanese economy as well. Moreover, it is possible that supply chain woes for Japanese exporters could continue if China does not shift from its zero-coronavirus policy.

A relentless increase in commodity prices has taken a toll on the export-oriented manufacturers in Japan. This rise occurred because of the COVID-19 lockdowns in China coupled with the Russian invasion of Ukraine.

According to analysts, it is likely that there was a 3.8% drop in industrial production in Japan in the April to June quarter, as opposed to last year. In the July to September quarter, they believe that there will only be a recovery of 2.2%.

Domestic situation

As far as the domestic environment is concerned, the economy is expected to continue reaping the benefits from a household spending recovery. This is because of the pent-up demand for services like travel after the country lifted the COVID-19 restrictions in March.

Market analysts said that rising prices were not causing a fall in private consumption for now, but if they remain persistent, then there could be an impact. The outlook of consumption has become uncertain once more because of the rise in coronavirus cases recently.

It is expected that the core annual inflation in Japan will hit 2.4% in the last quarter of this year and then align with the 2% target of the Bank of Japan in the next year. However, most of analysts said that the Bank of Japan was not expected to unwind its easy monetary policy until next year or later.

Analysts believe that the government should shift its focus to the energy policy of the country, as there is a rise in power consumption.