Zero growth forecast for '09

The government offered a sobering outlook on the economy Friday, slashing its forecasts to zero growth in real gross domestic product for fiscal 2009, and a 0.8 percent contraction for 2008 ending in March.

Its previous GDP outlook, made in July, was for real growth of 1.3 percent and nominal growth of 0.3 percent.

The last time Japan projected zero growth was in 2001.

The Cabinet Office also said it expected nominal GDP growth of 0.1 percent for 2009 and a 1.3 percent contraction in 2008, because it believes the economy will be underpinned by ¥75 trillion in economic stimulus.

The economy has been hit by a global credit crunch and a slowdown that has weakened both overseas and domestic demand, a Cabinet Office official said.

Japan's economy entered recession after contracting in the April-June and July-September quarters. In fiscal 2007, the economy posted a real 1.9 percent expansion and a nominal 1.0 percent gain.

Prime Minister Taro Aso told his Cabinet that the economy has been experiencing "severe conditions" and pledged to swiftly implement stimulus packages by enacting a second extra budget for 2008 and a principal budget for fiscal 2009.

Aso and the Cabinet endorsed the economic outlook.

Finance Minister Shoichi Nakagawa said separately that public demand is expected to lead the economy in fiscal 2009, giving a 0.6-point boost to real GDP.

Although private-sector think tanks project negative growth for the fiscal year starting in April, Nakagawa expressed hope that GDP will manage to stay flat, buoyed by stimulus packages involving fiscal spending of ¥12 trillion, or about 2 percent of GDP.

He quoted Aso as saying Japan can be the first of the major economies to exit the economic spiral by quickly taking emergency measures.

The Cabinet Office said the stimulus measures as a whole could boost GDP by around a point next year.

Economic and fiscal policy minister Kaoru Yosano claimed the steps, which include a ¥2 trillion cash benefit program to boost spending, are on par with measures taken by other countries.

Fiscal spending by the United States to boost the economy amounts to about 1.1 percent of its GDP, while steps in Britain have reached some 1.4 percent of its GDP, according to government estimates.

The office said that, according to a rough estimate, about 40 percent of the cash benefit will be used directly on consumption and push real GDP up by around 0.2 point in 2009.

As for the consumer price index, that is expected to rise 1.3 percent in 2008 but fall 0.4 percent in 2009 as energy and raw materials costs decline.

The GDP deflator, a key gauge of inflation, is expected to fall 0.5 percent by March and rise 0.1 percent in 2009.

Underlining the negative prospects for employment, the jobless rate is projected to rise to 4.2 percent in 2008 and 4.7 percent in 2009 — the worst level since 2002.

The government is pessimistic about the corporate sector, due mainly to slowing exports. It said business investment is likely to fall a real 4.7 percent in 2008 for the sharpest drop in six years, and slide 4.2 percent the following year.

Housing investment is expected to drop 4.1 percent for 2008 but grow 4.7 percent in 2009, helped by the tax breaks for home buyers.

Private consumption is also expected to gradually recover and log 0.4 percent growth in 2009 after rising 0.2 percent in 2008.