By Daniel Leussink

TOKYO, (Reuters) – Japan’s economy is expected to grow slower than anticipated this quarter, despite optimism for a rebound in consumer spending after showing resilience over the past three months.

According to the poll, Japan is in danger of losing its third largest economy due to slowing Chinese economic growth and an increase in raw material prices. These issues could have a negative impact on Japan’s main manufacturing sector.

The slow expansion indicates the economy’s ability to return to pre-coronavirus-pandemic levels at the quarter’s end, according to about 70% of the respondents.

According to the poll, which surveyed 36 analysts between May 18 and 27, the economic growth forecast was 4.5%, lower than the 5.1% increase in April.

Takumi Takumi, Shinkin Central Bank Research Institute senior economist said that “the speed at which recovery at home has been slow.”

Corporate profit may be squeezed severely if raw materials prices rise because there is limited passing-through from those costs to final prices.

According to the poll, the top-cited concern threatening Japan’s economy during the second half of this year was a slowdown in Chinese economic growth.

China has been causing economic paralysis in Shanghai and other major cities with its extreme COVID-19 lockdowns. This disrupted supply chains, disrupting economic prospects, and putting a damper on economic activity.

Japan reported earlier this month that China’s tough-line measures against the pandemic led to a drop in Japan’s shipment to and from Asia’s largest economy, according to Japanese trade data.

If Japan’s economy shrinks less in March-January, it will rebound to the pre-coronavirus levels by April 2019, 20 out of 28 economists answered that they would expect this quarter.

Five of them chose to choose the quarter ahead, two chose October/December, and one chose April/June.

However, analysts said the economy was unlikely to be at its highest levels by end 2019. The October sales tax hike meant that it would take a significant hit.

Tsunoda said, “The economy is likely to exceed its presales tax rise level in July-September nextyear.”

For the future, “soaring raw materials costs” is the most frequently mentioned risk by economists. This was followed by “faster U.S. currency policy tightening”

There were also options for “spreading new coronavirus varieties”, “semiconductor chips and parts shortages”, and “negative effect of domestic price increases on private consumption”.

However, none of them cited the persistently weakening yen as being the greatest risk for the economy during the second half.

Also, core consumer prices (which exclude volatile fresh food prices) will go up 2.0% next fiscal year and 0.9% in 2023, according to the poll.

This fiscal year will see the economy grow by 2.3%. Then, in fiscal 2023, it is expected to expand at 1.5%.

Both projections indicated that analysts anticipated growth slightly less than the poll predicted.

(For additional stories about the Reuters global economy poll, click here