Japan’s 2022 GDP growth forecast lowered to 2.0%

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International Business News  –  On July 25, the Cabinet Office of Japan released an estimate that the real GDP growth rate of the economy in 2022 will be 2.0%. The outlook, which was set at a Cabinet meeting in January, was sharply revised down (3.2%). Affected by the closure of Shanghai in China, the crisis in Ukraine and inflation, the global economy has slowed down, and equipment investment and exports have slowed. The return of real gross domestic product (GDP) to COVID-19 levels will be delayed by one year to 2023.

The Cabinet Office made a report at the Economic and Fiscal Consultation Meeting. In 2022, the price increase was significantly increased by 1.7 percentage points, and is expected to reach 2.6%. Japanese Prime Minister Fumio Kishida pointed out that “rising prices are a risk for the economy to recover from the epidemic” and said that “appropriate and effective response measures will be taken.”

In this estimate, investment in equipment, which is one of the pillars of domestic demand and accounts for about 20% of GDP, is expected to grow by 2.2%, down from the 5.1% expected in January. Due to the impact of China’s COVID-19 zero policy and Russia’s attack on Ukraine, the global supply chain is in chaos, resource prices are higher, and the uncertainty of the outlook is increasing.

The growth rate of personal consumption, which accounts for more than half of GDP, was also revised down by 0.4 percentage points to 3.6%. The growth contribution of domestic demand decreased from 3.0 percentage points to 2.3 percentage points as a whole.

External demand slowed down significantly. Previously, external demand was expected to make a positive contribution of 0.2 percentage points, but this time it was lowered to a negative contribution of 0.3 percentage points. The previous forecast for export growth of 5.5% was revised down to 2.5%.

If it develops as expected, the GDP in fiscal 2022 will be 548 trillion yen. This is lower than in fiscal 2018 (554 trillion yen), which was the peak before the epidemic. Growth is projected at 1.1% in 2023, finally returning to COVID-19 levels.

Previous views have pointed out that the government’s economic outlook is too optimistic. Saisuke Sakai, chief economist at Mizuho Research & Technologies, said the cut was “appropriate.” The 2.0% growth forecast is in line with the average of 36 private economists’ ESP economic expectations survey conducted in July by the Japan Economic Research Center.

The economic environment has changed drastically in the last six months, and the Cabinet Office has also strengthened its pessimistic view. The 2-month lockdown in Shanghai since late March has brought to the surface the risk of the zero policy as a risk factor for the global economy. Japan’s industrial and mining production fell 7.5% month-on-month in May due to logistics disruptions and other impacts.

Russia’s attack on Ukraine in February raised concerns about energy and food supplies, adding to the rise in global prices. In order to curb inflation, the United States and Europe, which have accelerated interest rate hikes and reduced monetary easing, are facing the shadow of economic recession.

The outlook is not clear. The Cabinet Office’s estimate is based on a 2.4 percent global growth rate excluding Japan. If prices continue to rise for a long time, the economic growth of countries and regions will further decline. The economy may also deteriorate significantly if energy and food prices continue to rise amid lack of demand and sluggish wage increases in Japan.