GDP outlook to be revised to 3% contraction

Kyodo News

In a rare move, Japan plans to slash its initial projection for real gross domestic product to around minus 3 percent for fiscal 2009 in light of the global economic slump, government sources said Tuesday.

In December, the government projected zero growth for the year that began April 1. But now it is expecting a large contraction because of the damage the U.S. recession is inflicting on Japan’s export-based economy, the sources said.

Real GDP growth is expected to be negative for the second consecutive year, and the revision will forecast Japan’s worst real GDP number since the end of the war, exceeding the 1.5 percent contraction in fiscal 1998.

The government does not normally revise its projection for real GDP to show negative growth, or review its outlook at the start of a new fiscal year when it is unsure how effective stimulus measures will be. But the step itself signals it is convinced that negative growth of about 4 percent to 5 percent will be inevitable because of the deep U.S. recession unless special fiscal steps are taken, the sources said.

The revised figure was apparently calculated by anticipating that its new stimulus package would offset the contraction by about 2 percentage points, the sources said.

GDP is the total value of goods and services produced domestically. Real GDP figures are adjusted for price and seasonal variations.