TOKYO, July 22: Japan’s economy is set to grow by 1.3 per cent this fiscal year, much less than previously expected as soaring commodity and food costs hit companies and consumers, the government said on Tuesday.

In January the Cabinet Office had predicted that Asia’s largest economy would grow by 2.0 per cent in the current fiscal year to March, but business investment and household spending have been weaker than expected since then.

“There are concerns about the prospect of the real US economy entering a recession, and it’s unavoidable that any US slowdown would have an impact on the world economy,” said Japanese Finance Minister Fukushiro Nukaga.

Corporate investment in new equipment and factories is now expected to rise a tepid 0.6 per cent this year, against an earlier forecast for a 3.3 per cent gain, as companies battle soaring commodity costs and a stronger yen.

Consumer spending, adjusted for inflation, is projected to increase by 1.0 per cent instead of 1.3 per cent, the Cabinet Office said, blaming rising food and energy prices.

“Tough economic conditions have been continuing since the start of the year,” Japanese Economic and Fiscal Policy Minister Hiroko Ota told reporters.

Consumer prices will rise 1.7 per cent this fiscal year, far beyond the previous forecast for a 0.3 per cent gain, the Cabinet Office predicted.

Economic growth is expected to pick up slightly to 1.6 per cent in the year to March 2010, it said.

The economic growth projection for the current year is slightly more optimistic than that of the country’s central bank, which last week trimmed its forecast to 1.2 per cent from 1.5 per cent.—AFP