Japanese economic growth is set to slow as the boost from reconstruction-related demand fizzles, ratings firm Standard & Poor’s said in a report Tuesday.
The company, which has an AArating on Japan with a negative outlook, said it expects the country to post 2% real growth in the fiscal year ending March 2013, driven by reconstruction spending after the March 2011 earthquake and tsunami disasters, even as private consumption and the global economy remain tepid.
Growth will then fall to 1.6% in the next fiscal year, and will average below 1% in fiscal 2014, the report said.
The report comes after a flurry of weak economic data have caused concerns that Japan may be heading for a mild recession as domestic demand wanes and conditions abroad remain bleak. The government and the Bank of Japan both cut their assessment of the domestic economy last month.
Takahira Ogawa, director of sov-
ereign ratings at S&P in Singapore, said Japan’s economic conditions won’t improve in the interim unless the external environment improves, or Japanese companies improve their competitiveness in the global market.
He said the struggles of Japanese manufacturers can’t be attributed entirely to foreign-exchange fluctuations. “That’s a big issue, but if you look at it, there are more fundamental issues—whether the corporate managers are really taking enough risks or not.”
Mr. Ogawa said the nation’s current-account surplus won’t likely fall into the red within the next five years, but the trade balance won’t likely recover significantly soon.
The current-account surplus, the broadest measure of Japan’s trade with the rest of the world, has stayed mostly in the black, supported by income from foreign investments. That number has steadily deteriorated, however, as trade slumps.
S&P cut its sovereign-credit rating for Japan most recently in early 2011. It has warned of another
downgrade as the country’s finances continue to deteriorate.
Japan’s public debt has risen to more than 200% of gross domestic product in recent years. Past downgrades by S&P and other ratings companies have caused little domestic market reaction, however. The 10-year Japanese government bond yield is still the second-lowest in the world.
The S&P report also said the government’s plan to double the sales tax in stages to 10% by 2015 will likely crimp growth in 2014 and 2015 after consumers rush to buy before the increase kicks in.
Mr. Ogawa said that consumption should rebound in one to two years after the increase as consumers adjust to new prices but that the government’s fiscal problems won’t be easily solved.
“If you like it or not, you have to do raise the tax, because the government is simply spending twice what they can earn,” he said. “No matter how much Japan’s economic growth rate increases, you can’t increase the level of government revenue by double.”
The company, which has an AArating on Japan with a negative outlook, said it expects the country to post 2% real growth in the fiscal year ending March 2013, driven by reconstruction spending after the March 2011 earthquake and tsunami disasters, even as private consumption and the global economy remain tepid.
Growth will then fall to 1.6% in the next fiscal year, and will average below 1% in fiscal 2014, the report said.
The report comes after a flurry of weak economic data have caused concerns that Japan may be heading for a mild recession as domestic demand wanes and conditions abroad remain bleak. The government and the Bank of Japan both cut their assessment of the domestic economy last month.
Takahira Ogawa, director of sov-
ereign ratings at S&P in Singapore, said Japan’s economic conditions won’t improve in the interim unless the external environment improves, or Japanese companies improve their competitiveness in the global market.
He said the struggles of Japanese manufacturers can’t be attributed entirely to foreign-exchange fluctuations. “That’s a big issue, but if you look at it, there are more fundamental issues—whether the corporate managers are really taking enough risks or not.”
Mr. Ogawa said the nation’s current-account surplus won’t likely fall into the red within the next five years, but the trade balance won’t likely recover significantly soon.
The current-account surplus, the broadest measure of Japan’s trade with the rest of the world, has stayed mostly in the black, supported by income from foreign investments. That number has steadily deteriorated, however, as trade slumps.
S&P cut its sovereign-credit rating for Japan most recently in early 2011. It has warned of another
downgrade as the country’s finances continue to deteriorate.
Japan’s public debt has risen to more than 200% of gross domestic product in recent years. Past downgrades by S&P and other ratings companies have caused little domestic market reaction, however. The 10-year Japanese government bond yield is still the second-lowest in the world.
The S&P report also said the government’s plan to double the sales tax in stages to 10% by 2015 will likely crimp growth in 2014 and 2015 after consumers rush to buy before the increase kicks in.
Mr. Ogawa said that consumption should rebound in one to two years after the increase as consumers adjust to new prices but that the government’s fiscal problems won’t be easily solved.
“If you like it or not, you have to do raise the tax, because the government is simply spending twice what they can earn,” he said. “No matter how much Japan’s economic growth rate increases, you can’t increase the level of government revenue by double.”
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