TOKYO Jan 10 Japan's tepid economy is in danger
of following the United States into a recession this year,
economists at Goldman Sachs said on Thursday.
Goldman's Japan economists said in a note to clients that the
probability of a recession in the world's second-largest economy
was 50 percent, forecasting slow growth in the first half of the
year as emerging market economies cool.
On Wednesday, Goldman's U.S. economists predicted a recession
this year due to the housing market's tumble and weaker consumer
spending, predicting the Federal Reserve would cut overnight
rates to 2.5 percent from the current 4.25 percent in response.
A recession is usually defined as an economy contracting over
at least two straight quarters.
Goldman cut its forecast for growth in the Japanese economy
this year to 1 percent from 1.2 percent after it said the U.S.
economy will shrink in the second and third quarters.
Goldman also said it expects the Bank of Japan to keep rates
on hold at 0.5 percent this year. Previously it expected a rate
rise in the July-September quarter. But it believes the BOJ will
resume raising rates in the second quarter of 2009.
"We expect there to be extremely little room for rate hikes
justified by domestic factors," Goldman economists Tetsufumi
Yamakawa and Naoki Murakami said in the note.
Financial markets see little chance of the BOJ raising rates
this year as the Fed keeps loosening monetary policy and other
major central banks are cutting rates to counter a broadening
The biggest challenge for Japan is a recovery in consumer
spending from its extended slump as falling household sentiment,
stagnant wage growth and rising prices block a recovery, Goldman
BOJ Deputy Governor Toshiro Muto, the leading candidate to
succeed Governor Toshihiko Fukui when his term expires in March,
said on Thursday the economy was slowing and its positive cycle
was weakening temporarily, reinforcing views the central bank
will be keeping policy unchanged for a while. [ID:nT253839]
(Reporting by Eric Burroughs, Editing by Michael Watson)