The government on Tuesday maintained its basic assessment of the economy, reiterating that it is making a moderate recovery but warning that exports are slowing amid Europe’s sovereign debt crisis.
The economy “is still picking up slowly, while difficulties continue to prevail due to” the March 11 earthquake and tsunami, the Cabinet Office said in a monthly report endorsed by ministers, maintaining the view for the third straight month.
“Exports are weakening recently,” it added, downgrading the component for the first time in three months.
Europe’s debt crisis and the eurozone’s economic downturn have weakened demand for Japanese products in the 17-nation currency bloc, as well as in some developing economies in Asia that import Japanese parts to make final products for export to Europe.
The negative outlook for Europe has added to the weight on domestic exporters, who were already under pressure from last year’s mass flooding in Thailand, where output at Japanese-built plants has sharply declined.
Among those worst hit were certain high-tech firms that provide semiconductors and other electronic parts to emerging economies in Asia, including China, Singapore and South Korea, the Cabinet Office said.
The monthly report also lowered the assessment of imports for the first time in six months, saying their “pace of increase is slowing.”
The Cabinet Office said there have been fewer imports of materials used to manufacture goods for export.
But imports of natural resources such as crude oil and liquefied natural gas have increased because utilities have had to boost thermal power generation while their nuclear reactors remain idle.
The Cabinet Office has kept the assessments of other 12 components on hold.
Production is “picking up slowly,” private consumption “is almost leveling off,” and recent price moves indicate the economy “is in a mild deflationary phase,” the report said. Employment conditions remain “severe,” while companies’ profits “have decreased” and their business spending “is leveling off.”
As for the world economy, the report said it is continuing to make a “weak recovery.”
The Cabinet Office upgraded the U.S. economy, citing recent positive data on employment and consumption that it said added to the view that the world’s biggest economy is “moderately recovering.”
As for Europe, it revised its assessment downward, warning that the eurozone’s sovereign debt crisis has led economies in the region to level off or show “weak development.”
On China, domestic demand remains robust, the report said, while noting the country’s exports to Europe have decreased due to the continent’s debt crisis.