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Private-sector economists said Monday the economy will probably shrink further during the current business year, falling short of the government’s macroeconomic target of 1.7 percent growth.

“The Japanese economy will remain in a tough situation in the April-September first-half of fiscal 2001 because of continued falls in personal consumption and public-sector demand,” said Hideo Kumano, a researcher at the Dai-ichi Life Research Institute Inc.

“Though public investment rose 5.2 percent in the January-March quarter thanks to pump-priming budgetary measures last year, the effect will end in the April-June quarter.”

Most economists were concerned about flat consumption in the January-March period. This turned out to be worse than expected, despite a last-minute stampede by consumers to buy appliances before the implementation of the new Home Appliance Recycling Law in April.

Koichi Haji, chief economist at the NLI Research Institute, predicted that the nation will experience zero growth or a slight contraction in the current fiscal year. He said consumers are still reluctant to spend amid fears surrounding the fragile economy.

Corporations also harbor a bearish attitude toward capital spending in the face of the weakening U.S. economy, he said.

Eiji Doke, senior strategist of Sanwa Securities Co., shared this view. “Bleak external demands as a result of a slowdown in the U.S. economy are expected to dampen private-sector capital investments further, sending the economy in the April-June quarter into minus growth for the second consecutive quarter,” he said.

Yasunari Ueno, an economist at Mizuho Securities Co., said weak GDP figures for the January-March period will stifle the efforts of the Cabinet of Prime Minister Junichiro Koizumi to tighten the nation’s finances, pointing to a faster-than-expected fall in private-sector capital investment.

Mamoru Yamazaki, chief economist at Barclays Capital Japan, said the Bank of Japan will come under increasing pressure to ease credit conditions, with the economy certain to continue its current slump amid decreasing exports and a decline in capital spending.

Susumu Takahashi of the Japan Research Institute Ltd. also predicted a further worsening in economic growth. Takashi cited the cautious attitude of big companies toward capital spending and weak exports to the U.S.

Keidanren warning

Japan may have difficulty achieving positive economic growth in fiscal 2001 unless corporate investment and personal consumption make a comeback, the chairman of the Japan Federation of Economic Organizations (Keidanren) warned Monday.

The 0.2 percent contraction of the nation’s gross domestic product in the January-March quarter was not surprising, given that the negative impact from the U.S. and Asian economic slowdown has been apparent from the beginning of the year, Keidanren chief Takashi Imai said in a regular news conference.

He predicted a rough road ahead for the current fiscal year, citing an anticipated decline in government spending under Prime Minister Junichiro Koizumi’s reform policies and a continuing slump in external demand.

“But we know from experiences during the past decade that temporary stimulus (by the government) will not have a lasting effect (on the economy),” Imai said. “So we have to cope with the situation and put structural reforms into effect.”

The Keidanren chairman added that the business sector must be prepared to deal with slow economic growth for two to three years as the structural reforms begin, adding that Japan may suffer negative growth during the period.

“I expect the prime minister to show leadership and proceed with the reforms, because Japan’s situation will not improve unless the reforms are carried out,” Imai said.

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