Tuesday, January 23, 2001
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Posted on: Tuesday, January 23, 2001

Analysts trim forecasts for Japanese economy

Bloomberg News

TOKYO — Economists have trimmed forecasts for Japanese economic growth as companies scale back spending on new factories and equipment.

Japan’s economy probably will expand 1.6 percent in the fiscal year ending March 31, according to the median of 12 forecasts in a Bloomberg News survey. That’s down from the 1.9 percent forecast a month ago.

Growth is seen slowing to 1.4 percent next fiscal year, half a percentage point less than the previous survey.

The revisions reflect cutbacks in capital spending, the only source of growth in the three months ended Sept. 30 and a foundation of last year’s recovery. A Ministry of Finance survey showed spending by companies outside finance rose just 0.2 percent in the third quarter over the year earlier — much less than the government’s initial 9.3 percent estimated gain.

Economists now expect capital spending to grow 7.1 percent this fiscal year, down from an earlier forecast of 7.6 percent. Estimates for fiscal 2001 were cut to 5.2 percent from 6.9 percent, the survey found.

The changes signal that companies may be running out of money to buy more equipment.

"Profit growth is practically screeching to a halt," said Yukari Sato, a senior economist at Nikko Salomon Smith Barney Ltd., in a note to clients. That’s due "in large part to sluggish domestic sales, plus the decelerating global economy."

The U.S. economy is growing at its slowest pace in four years, sapping demand from Asian countries that buy and materials from Japan used in products destined for U.S. markets. About 40 percent of Japan’s exports are shipped to other Asian nations.

The weak euro — down 19 percent since it was introduced a little more than two years ago — is eating into exporters’ earnings.

That has hurt business confidence. The Bank of Japan’s most widely watched business survey showed the key confidence index for large manufacturers stalled in December and is expected to decline in March.

Then there’s the debt problem. Some nonmanufacturers, such as construction contractors, retailers, power utilities and real estate developers, haven’t spent as much of their profit on capital, HSBC’s Morgan said, suggesting this sector uses most improvement in profit to pay off debt.

An Industrial Bank of Japan Ltd. survey found 60 percent of companies felt they were carrying too much debt, and 30 percent said repaying debt is a higher priority than investing.

Nonmanufacturers amassed trillions of yen in debt during the 1980s. The assets they bought, such as real estate, are now worth a fraction of what they paid. Their drive to repay debt has led to a drought in bank lending that has lasted three years.

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