TOKYO—Japan’s government slashed its economic growth forecast for this fiscal year largely due to slowing overseas demand, highlighting the impact of Russia’s war in Ukraine, China’s strict COVID-19 lockdowns, and a weakening global economy.
The forecast, which serves as a basis for compiling the state budget and the government’s fiscal policy, included much higher wholesale and consumer inflation estimates as surging energy and food costs and a weak yen push up prices.
The world’s third-biggest economy is now expected to expand about 2.0 percent in price-adjusted real terms in the fiscal year ending in March 2023, according to the Cabinet Office’s projections, presented at the Council on Economic and Fiscal Policy—the government’s top economic panel.
That marked a sharp downgrade from the government’s previous forecast of 3.2 percent growth released in January. The cut largely stemmed from weaker exports, which the government expects to expand 2.5 percent compared to 5.5 percent in the previous assessment.
The government projected 1.1 percent growth for the following fiscal year starting April 2023.
It released its projections days after the Bank of Japan downgraded expectations for growth for this fiscal year to March 2023 to 2.4 percent from 2.9 percent three months ago, and underscored the central bank’s stance to maintain massive stimulus even as several other economies have started to hike rates to curb inflation.
The government forecast overseas demand to subtract real gross domestic product by 0.3 percentage point for the current fiscal year, compared to an expected 0.2 percentage point boost seen previously.
It projected overall consumer inflation, which includes volatile fresh food and energy costs, at 2.6 percent for this fiscal year compared to 0.9 percent expected in the previous assessment in January.
Wholesale inflation was estimated at 9.8 percent for this fiscal year, much higher than 2.0 percent projected in January, as higher oil and food prices and a weaker yen pushed up raw material cost.
The higher consumer inflation was not expected to weigh greatly on private consumption as stronger spending on services such as travel was seen boosting this fiscal year’s economic growth, a Cabinet Office official said.
For fiscal 2022 and fiscal 2023, the Cabinet Office forecast nominal economic growth of 2.1 percent and 2.2 percent, respectively. Higher nominal growth estimates point to government expectations for greater tax revenue.
By Daniel Leussink