35% of firms see economy losing steam during 2008

About one-third of major companies polled by Kyodo News expect the economy this year to reach a turning point in the longest period of expansion since the war.

While 72 of the 110 firms that responded to the survey last month expect the economy to continue on a moderate expansion path in 2008, 38 predict it will stall or turn downward, threatening the uninterrupted growth that started in 2002.

The survey results, released Wednesday, show that 69, or 62.7 percent of the respondents, view the economy right now as expanding moderately, down some 20 percentage points from the previous poll in September.

This indicates a growing number of major firms are concerned about an economic downturn coming on the heels of a U.S. slowdown, high crude oil prices and the U.S. subprime mortgage crisis.

A slowdown in the U.S. economy was cited by 86 of the 110 firms as a risk factor for this year, high prices of crude oil and other resources by 82 firms and the expanding impact of the subprime mortgage crisis by 53 firms. The respondents gave multiple answers to this question.

While only 26 firms expect the subprime crisis to have serious effects on the real Japanese economy, 48 predicted the Bank of Japan will refrain from raising interest rates in view of the subprime woes.

Only 17 firms expect the subprime problem to fade away by March, while 11 predict the woes to linger beyond the next 12 months.

Sixty-nine of the 71 firms that provided earnings projections said they are confident of either gaining higher profits in the business year that starts in April or keeping profit at the same level as this business year. Of the 84 respondents that provided capital investment plans, only 32 said they plan to increase such spending in business 2008.

Of 101 firms giving foreign-exchange rate forecasts, 59 expect the dollar to slip below ¥105 this year. The data indicate exporters are no longer expected to benefit from the dollar's rise against the yen as seen in 2007.

Forty-four firms view a Lower House election by this summer as desirable, accounting for more than half of the 68 firms that responded to this question.