TOKYO, June 18 - Japan will likely face a year of zero growth in fiscal 2001/02 after falling into recession in the current quarter -- the worst annual performance in three years, a poll of economists showed on Monday.
Hit by sluggish consumer spending and weak overseas' economies, Japan will likely see zero growth in gross domestic product (GDP) for the year to March 2002, according to the median forecast in a survey of 25 economists taken last week. The average was for meagre growth of 0.1 percent.
"With corporate activity slowing down, incomes and employment conditions should worsen. Consumer spending should stay weak for a while longer," economists at the Japan Research Institute said in a report. For the current April-June quarter, economists forecast the economy to shrink about 0.2 percent for the second straight quarter of contraction -- meeting the common definition of a recession.
The economy contracted 0.2 percent in January-March from the previous quarter, the government announced last week. Finance Minister Masajuro Shiokawa has forecast the current quarter to be even worse, effectively declaring Japan in recession.
Spending by Japanese wage earners' households, a key gauge of consumer spending, fell a real 4.4 percent in April, government data showed last week.
Overseas demand is unlikely to provide much support. The surplus on Japan's current account fell for the fifth month in a row in April, reflecting a slowdown in the country's two biggest markets -- the United States and Asia.
But many said overseas economies and domestic corporate activity should recover toward the latter half of the fiscal year, keeping the economy from sinking deeply on an annual basis.
"Production should stay weak in the first half. But exports should recover at some point and corporate capital expenditure should increase, and we should see a return to growth," Daiwa Institute of Research said.
Economists disagreed on whether extra fiscal outlays would be needed to boost the economy.
Jesper Koll, chief economist at Merrill Lynch in Tokyo, said he believed Prime Minister Junichiro Koizumi's pledge that he would not resort to extra spending.
"Here, we maintain our view that PM Koizumi and his team will stick to their guns and implement a gradual, but steady fiscal consolidation," he said.
Instead, Koll said the focus of policy expectations would shift to the Bank of Japan (BOJ).
"We expect more aggressive 'quantitative easing' by August, with the BOJ stepping up outright purchases of Japanese government bonds (JGBs) by about two to three trillion yen," he said.
The BOJ kept its already super-loose monetary policy unchanged on Friday, arguing that with short-term interest rates already at zero, it can do no more to prop up growth.
But many say the BOJ should take further easing steps by increasing its current-account target, or the volume of reserves parked at the central bank, from the current five trillion yen ($40.70 billion).
The following is a table of GDP growth predictions for the current fiscal year to March and the April-June quarter, in percent.