The economy this year, if described like a weather forecast, will be cloudy the first six months but turn partly sunny in the latter half.

After being overtaken by a storm in 2009, most economists, as well as policymakers, believe the economy as measured by gross domestic product will mark its first full-year expansion in three years, largely because of increased exports to Asia.

The expansion will especially be driven by robust growth in China, which has already overtaken the United States as Japan’s No. 1 export destination, economists say.

Many believe the chance of the economy sinking into a recession again is slim as long as a pickup in overseas demand continues and the yen does not rise sharply against other major currencies.

“There may be constant fear about a double-dip recession. But, as an economist, I think it is illogical to adopt this kind of perspective, given the current state of the economy,” said Takuji Aida, senior economist at UBS Securities Japan Ltd.

Aida said Japan will benefit not only from China’s strong growth but also from a cyclical recovery in the U.S. in later months.

Among Cabinet members, Finance Minister Hirohisa Fujii has said categorically that the economy will expand in the near future, pointing out that steps to be introduced by the Democratic Party of Japan-led government from fiscal 2010 will boost private consumption.

“The economy is to grow for sure,” Fujii Dec. 30 at his last news conference for 2009. “There will be no double-dip recession.”

A large number of private financial institutions have predicted Japan’s GDP will grow in the range of up to nearly 2 percent in real terms in 2010.

The government has taken a somewhat more conservative view but is still forecasting a real GDP expansion of 1.4 percent for the fiscal year starting in April, up from a decline of 2.6 percent projected for fiscal 2009.

To achieve that sort of recovery, there has been broad consensus that the first half of 2010 will be a crucial period. The pace of growth in industrial production and exports is expected to stall as the impact of worldwide stimulus measures wears off.

Turning to domestic demand, a boon from the emergency steps taken by the previous government, leading to a rise in the purchase of energy-efficient consumer electronics, is expected to lose momentum.

To sustain the nascent recovery, the government has compiled an extra budget to finance an additional stimulus package.

But there will likely be an economic policy vacuum as the supplementary budget needs to be submitted for approval to the regular Diet session starting this month, so much so that it will take time before any effect is seen.

The impact of the package on encouraging economic activity will also be limited because Prime Minister Yukio Hatoyama’s Cabinet, launched in mid-September, put it together by basically canceling some of the policies mapped out by the predecessor Liberal Democratic Party-led government.

The size of the packages are equivalent, even though the DPJ-led government shifted the spending “from concrete to people” in an attempt to provide more cash to households, instead of devoting trillions of yen to big public works projects.

That also applies to the fiscal 2010 budget.

A record ¥92.30 trillion budget, approved by the Cabinet in late December, made a huge cut in the customarily high public works outlays to enrich social welfare programs.

Although recognizing the importance of higher personal consumption for a self-sustaining recovery, many economists say the government’s steps, including providing monthly child allowances, scheduled to begin in June, will not generate immediate effects.

If all goes well, the government’s generous spending on households may improve consumer spending in the second half of the year. But a deep cut in public works projects is likely to eat into growth to be driven by personal consumption.

Amid deflation, Kyohei Morita, chief economist at Barclays Capital Japan Ltd., said the worst of the downturn for the nonmanufacturing sector and household incomes will come in the middle of 2011.

“Companies still need to rein in fixed costs, and they won’t be able to tolerate wage increases,” Morita said.

In addition to losing purchasing power, more people will probably find it difficult to pay back their debts in 2010, he said.

Speculation is rife that the government may craft an extra budget ahead of the July Upper House election to avoid a serious slowdown in the economy around that time.

Morita and other economists, nevertheless, forecast that stronger growth in the second half will be supported by increases in capital spending coupled with further gains in exports, rather than a sharp rebound in consumer spending.

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