Japanese economy likely to remain in “stationary state” in 2020 - Barclays

The Japanese economy is expected to stay in a “stationary state” in 2020 with growth trending around potential at +0.5~+0.8 percent, said Barclays in a research report. Even if the economy and prices might continue to face downside risks, especially from overseas demand, economic package compiled at the end of 2019 is expected to provide some support.

However, the economic package, in spite of a supplementary budget of JPY 4.4 trillion, surpassing the size of past budgets, are expected to be deployed over a period of several years via the utilization of funds, raising uncertainty around any contribution to growth in 2020, said Barclays.

Factoring in the effects of fiscal expenditure under the FY19 supplementary budget and FY20 initial budget 1 adopted by the Cabinet on 13 December and 20 December, respectively, the GDP growth and CPI inflation forecasts have been revised.

“For GDP, we revised our growth forecasts to +0.7 percent from +0.4 percent for 2020 (2019 estimate: +1.0 percent) and to +1.1 percent from +0.8 percent for 2021, looking for growth around the upside of the estimated range for potential growth. On a fiscal year basis, we now forecast growth of +0.9 percent for FY20 (FY19 forecast: +1.0 percent) and +0.9 percent for FY212”, stated Barclays.

Core inflation is expected to lack momentum against a backdrop of deflation inertia in the corporate and household sectors.

“We have retained our projection of +0.6 percent for 2020 (2019 estimate: +0.6 percent) and revised slightly to +0.6 percent from +0.5 percent for 20213. Even in the longer term, we see inflation trending around just 1 percent, sharply below the BoJ’s price stability target of +2 percent”, added Barclays.