By Anna Yukhananov
WASHINGTON Jan 15 Japan's economy contracted in
the second half of 2012 and is on track for lackluster growth of
0.8 percent this year, hurt in part by a territorial row with
China, the World Bank said in a report on Tuesday.
Relations between China and Japan, the world's biggest
economies after the United States, have deteriorated sharply
since September, when the Japanese government purchased islands
that China claims in the East China Sea.
The value of Japanese exports to China fell by 17 percent
between June and November of last year, contributing to a 3.5
percent annualized drop in Japan's growth in the third quarter.
The World Bank said the end of government tax incentives to
purchase fuel-efficient automobiles also hurt the economy, as
well as the fading boost to growth from reconstruction spending
in the aftermath of the 2011 earthquake and nuclear disaster.
"In Japan, the economy appears to be contracting -- in part
because of political tension with China over the sovereignty of
islands in the region," it said in its twice-yearly Global
Economic Prospects report.
Revised GDP figures released by Japan in December showed the
Japanese economy contracted in both the second and third
quarters, and analysts expect it shrank further in the final
three months of the year, as does the World Bank.
The Washington-based global development lender said its
forecast for 2013 assumed an improvement in Tokyo's relations
with China. Assuming that, Japan would be on track to achieve
growth rates of 1.2 percent in 2014 and 1.5 percent in 2015.
While it warned that weakness in Japan could pinch global
trade, given that Japan is the world's fourth-largest importer,
it said a resolution of Sino-Japanese tensions could help speed
a return to growth in Japan and boost the global recovery.
A slowdown in China due to a sudden unwinding of its high
investment rate could also sting global growth. In addition, it
would push down commodity prices, as China consumes a large
portion of the world's metals and oil.
However, the World Bank said this scenario of a hard
economic landing is unlikely and it reiterated its forecast
released in December that China's economy would expand 8.4
percent this year.
The Bank expects growth in the world's most populous nation
to slow to around 8 percent in 2014, with the potential pace of
economic expansion declining as productivity and labor force
growth taper off.
As China starts to slow down in the medium-term, India's
economy should pick up. The South Asian economy was marred by
electricity shutdowns, a subpar harvest, and a drop in imports
to Europe, leading to growth of only 5.1 percent in the fiscal
year ending in March, the weakest rate in nearly a decade.
But starting from this year, the economy should accelerate,
as the government loosens restrictions on foreign direct
investment and reforms other policies, the Bank said.
The World Bank expects India to grow 6.6 percent in 2014,
and 6.9 percent by 2016, narrowing the gap with China, which is
expected to grow 7.9 percent that year.
World Bank chief economist Kaushik Basu said China has grown
at around 10 percent for close to three decades, an
unsustainable rate in the long term, while India only took off
about a decade ago and still has room to grow.
"Who knows, a couple of years down the road they may be neck
to neck," he told reporters.