As the world economy slows down, Reuters polls show that Japan’s growth will slow down in Q3, FY22.

Tokyo (Reuters) – A Reuters poll showed that Japan’s economy is likely to grow at a slower rate than was thought before. This is because there are more risks of a global economic slowdown, and supply problems are hurting Japanese exporters.

Manufacturers in the world’s third-largest economy are vulnerable to the worsening growth outlook in major trading partners like the U.S. and China, which is fueling fears of recession and stagflation around the world.

The poll showed, however, that analysts still thought Japan’s growth would be positive until March of next year. This was due to the expected recovery of consumption, which makes up more than half of the country’s gross domestic product.

The median prediction of 36 economists in a July 4–15 poll was that the economy would grow by 3.1% on an annualised basis this quarter. This was less than the 3.5 percent predicted in a June survey.

In the poll, economists also cut their growth estimates for the October-December and January-March quarters by a small amount. However, they cut their estimates for the last quarter even more, from 4.1 percent in June to 3.2 percent now.

Harumi Taguchi, chief economist at S&P Global (NYSE:SPGI) Market Intelligence, said, “The biggest reason for the overall downgrade is the growing sense that the U.S. economy is slowing down.”

China’s “zero-coronavirus” policy could also keep Japanese exporters from getting enough supplies.

After Russia’s invasion of Ukraine and COVID-19 lockdowns in Chinese plants this year, which has hurt Japan’s export-oriented manufacturers a lot.

Analysts in the poll thought that Japan’s industrial production would have dropped by 3.8% from April to June compared to the same time last year. They also thought that production would only rise by 2.2% from July to September.

After coronavirus restrictions were lifted in March, people were able to spend more money on things like travel and services, which helped the economy at home.

“Rising prices don’t seem to be putting a damper on private consumption right now,” said Takumi Tsunoda, a senior economist at the Shinkin Central Bank Research Institute. “However, if they keep going up, they could have a bigger effect.”

According to him, the rise in coronavirus cases has made the future of consumption uncertain.

The median estimate of the economists in the poll was that Japan’s annual core consumer inflation would reach 2.4% in October through December and then reach the 2.0% goal set by the Bank of Japan early next year.

But almost 90% of analysts said that the BOJ would not change its ultra-easy policy until 2023 or later.

PRIORITISE ENERGY

When asked what the government should focus on now that the ruling coalition of Prime Minister Fumio Kishida won the upper house election on July 10, 19 of 27 economists, or 70 percent, said energy policy.

The prime minister of Japan said Thursday that he has asked the minister of industry to make sure that up to nine nuclear reactors are running in the winter, when more power is needed.

In a question that gave them two options, 12 analysts chose “foreign/security policy,” while 6 chose “social security” and “rising prices.”

Five economists said “COVID-19 pandemic,” two said “wage increases,” two said “fiscal reform,” and one said “growth strategy.”

When asked what the most likely effect on Japan’s economy would be if a heatwave lasted all summer, 12 of 27 economists said that it would be bad for both consumption and production, and some said that it would increase the chances of a power shortage.

Eight other people said that the scorching heat would help consumption but hurt production, while five said that it would help both consumption and production.

Chiyuki Takamatsu, chief economist at Fukoku Mutual Life Insurance, said, “Consumers will spend more on travel, lodging, and more powerful, energy-efficient air conditioners” if the heat wave lasts for a long time.

(For more stories from the Reuters package of polls on the long-term economic outlook:)