Economists divided over prospects for Japan recovery

Asia Pulse/Nikkei, Asia Times, 11 March 1999

OSAKA—A group of economists agreed Monday the Japanese economy is close to bottoming out but were divided over whether it will return to a recovery track in fiscal 1999. The economists were participating in a Kobe forum sponsored by Nihon Keizai Shimbun and the Japan Center for Economic Research (JCER).

JCER Chairman Yutaka Kosai predicted the economy will shrink about 2.5 percent in fiscal 1998 ending March. The economy's bottoming out, but how quickly an upturn will begin remains to be seen. The turning point will come when plant and equipment investment touches bottom, he said.

Shigeru Matsushita, a director at Sanwa Research Institute Corp., forecast the economy will shrink by between 2.4 and 2.5 percent this fiscal year. Worries about the financial system have calmed, but actual economic activity remains in a severe state, he noted.

Masaru Takagi, a professor at Meiji University, said, The economy has bottomed out; judging from industrial production and household spending figures, it recently started moving upward. On prospects for fiscal 1999, Masumi Sato, vice president of Kobe Steel Ltd. (TSE:5406), said the economy will likely shrink between 0.8 and 0.9 percent, given that capital investment is expected to decline nearly 10 percent year on year and employee salary cuts will probably overwhelm the effects of planned tax cuts.

An additional 7 trillion yen or so in government stimulus measures will be necessary if the government is to achieve its goal of 0.5 percent growth for the year, he added. Takagi forecast 1.0 percent growth for fiscal 1999, assuming the government implements an extra 10 trillion yen in pump-priming measures, including 4 trillion yen in tax cuts.

Matsushita predicted a growth rate of between minus 0.5 percent and minus 1.0 percent in the absence of additional stimulus measures from the government. The rate will be minus 0.4 percent if the government implements 3 trillion yen in actual fiscals pending, or 'mamizu', he said.

Kosai foresees a negative growth rate even if the government comes up with additional stimuli. Companies ares till saddled with inefficient facilities, he said.