TOKYO- Japan’s economy will suffer a smaller contraction this year than initially forecast but won’t return to pre-coronavirus pandemic levels until at least early 2022, economists in a Reuters poll said.
Analysts polled were split on the Bank of Japan’s next policy move even as the economy continues to suffer from the pandemic’s fallout, underscoring a widening view that the central bank may have exhausted its ammunition to prop up growth.
The world’s third-largest economy will likely shrink 5.3 percent in the current fiscal year ending in March, the December poll of 27 analysts showed, revised up from a 5.6 percent contraction projected in November.
The upgrade was largely due to revised gross domestic product (GDP) data that showed the economy grew an annualized 22.9 percent in July-September, better than an initial estimate, as consumption and capital expenditure recovered.
Japan’s fresh $708 billion economic stimulus package, which follows two massive spending plans to combat the pandemic, is also set to underpin a fragile recovery.
“The recovery may speed up if a pick-up in foreign demand accelerates” and the government’s stimulus package encourages companies to spend more, said Harumi Taguchi, principal economist at IHS Markit.
Analysts expected the economy to rebound 3.4 percent next fiscal year, unchanged from the November survey, but a recent resurgence in coronavirus cases could slow the recovery.
Six of the 40 analysts polled expected Japan’s economy to return to pre-pandemic levels in the fiscal year starting in April 2021, 15 expected this to happen in the 2022 fiscal year and 19 said this would take place in the 2023 fiscal year or beyond.
“The pace of Japan’s economic recovery is weak compared with other industrialized nations,” said Hiroaki Mutou, economist at Sumitomo Life Insurance Company, adding that the country had a “low potential growth rate”.
“Japan’s capital spending is on the decline and the timing for the economy to return to the recovery track will likely be slower than that of overseas.”
Core consumer prices, which exclude volatile fresh food prices, will fall 0.5 percent this fiscal year and rise 0.2 percent next fiscal year, the poll taken in Dec.3-11 showed, unchanged from the previous month’s poll.
Analysts were divided on what the BOJ’s next policy move would be if it decided to change course after holding monetary policy steady since May. Some 21 out of 41 analysts expected the central bank to ease monetary policy further, while 20 expected the BOJ to start unwinding ultra-loose policy.