With amazing foresight, the Economic Planning Agency said Tuesday that the nation's economy will probably shrink by an inflation-adjusted 1.8 percent in fiscal 1998, reversing its initial projection of 1.9 percent growth for the current year.The contraction, which would be the largest one ever recorded in Japan, marks the second straight year of contraction in the postwar period, after the 0.7 percent negative growth in fiscal 1997. Calculated according to gross domestic product, the latest projection is in the ballpark of forecasts that have been made by many private economists but less severe than one recently made by the International Monetary Fund, which sees a 2.5 percent contraction.An official at the EPA's Coordination Bureau said the downward revision does not take into account a proposed 10 trillion yen second fiscal 1998 supplementary budget and the proposed 6 trillion yen in income tax cuts because there are no specific details on how these measures will be realized. The revision reflects weak domestic demand, and the impact of the comprehensive economic package will spread gradually, although the economy will remain stagnant for the remainder of the year, he said.The official said the EPA could revise its economic-growth projection for fiscal 1998 again, possibly in mid-December, to take into account psychological and other effects as details come in.At a press conference, EPA Director General Taichi Sakaiya held out hope and said that if various stimulus steps are fully executed, the economy should be able to post positive growth in the next fiscal year.The economy will reach its make-or-break point in the second half of fiscal 1998 through fiscal 1999, Sakaiya said. "Given that the economy does not change readily in one or two months, people may get irritated or frustrated, but we hope they will tolerate this severe situation for the time being," he said.On the sharp turnaround in the government's growth estimate from positive 1.9 percent to negative 1.8 percent, Sakaiya admitted it was a "flop" on the part of the EPA to have produced an estimate that had to be substantially revised.The latest projection, of negative 1.8 percent, may have a margin of error of plus or minus 0.2 percentage point, according to Sakaiya. Thus, negative growth of between minus 1.6 percent and minus 2.0 percent could result, he said. The latest revision uses the most recent data and is the first downward revision since fiscal 1974, when Japan went through the first oil crisis.The EPA is assuming there will be no more major financial collapses or global financial turmoil, and that the dollar-yen exchange rate will average about 142 yen.
