POLL-Japan economy on recovery path, China slowdown a potential risk
* For poll data see
* Factory production outlook raised, led by domestic demand
* Slowdown in China's economy could be a risk
* Japan needs reforms in tax and social security systems
TOKYO, July 18 (Reuters) - The Japanese economy is on track to steadily recover this fiscal year led by strength in private consumption and a pick-up in exports, but slowing Chinese growth may pose a risk to the nation's outlook, a Reuters poll found.
Prime Minister Shinzo Abe's mix of hyper-easy monetary policy and huge government spending will continue to support growth and he is expected to proceed with implementing steps in the reflationary strategy after the upcoming election for the upper house.
Abe's Liberal Democratic Party-led bloc is set to win a hefty majority in the July 21 upper house election, ending six years of a "twisted parliament", where the opposition controls the upper chamber.
The world's third-largest economy is forecast to grow 2.7 percent in the fiscal year to March 2014, a Reuters poll of 25 economists showed. The survey conducted between July 11-16 was largely in line with the results of the June poll.
Growth is expected to slow to 0.5 percent in the next fiscal year as planned sales tax increases to take effect in April 2014 will counter any effects from a boost in consumption before the tax hike. The latest forecast was unchanged from last month's poll.
"We will probably continue to see benefits from a weaker yen in exports and corporate earnings," said Taro Saito, director of economic research at NLI Research Institute.
"There may be some pause in a recovery in sentiment stemming from higher share prices, but a rush in demand before the planned sales tax hike will support private spending."
Industrial production is expected to rise 3.8 percent this fiscal year from a year earlier and 2.4 percent for fiscal 2014, up from 3.4 percent and 1.2 percent in an April survey.
"A recovery in domestic demand helped by the government's economic policies boosted firms' factory output activity, with a gradual recovery in external demand also catching up," said Saito.
However, economists said a slowdown in the Chinese economy could be the largest potential risk to Japan's growth, although it was unlikely to be an imminent threat.
China's annual GDP growth slowed to 7.5 percent in the quarter that ended in June - its second-lowest since the global financial crisis - putting pressure on Beijing to quicken reforms to spur the economy.
The survey also showed Japan's core consumer inflation, excluding the effect of an expected sales tax hike, will rise 0.7 percent for the fiscal year starting April 2014 and 0.8 percent for fiscal 2015.
These compared with the Bank of Japan's latest forecast for a 1.3 percent rise and a 1.9 percent increase, respectively.
A separate survey by Reuters showed the yen will weaken over the next year, driven by a broad rally in the dollar as the U.S. Federal Reserve gears up to trim its asset purchases.
AFTER UPPER HOUSE ELECTION
Fourteen out of 18 economists expect the government led by Abe to push forward with reforms and ease regulations after the election, as a political stalemate, which has hampered policies for most of the past six years, is expected to be resolved.
The priority for the government after the election, according to 15 out of 19 economists, is a comprehensive reform of tax and the social security system.
A corporate tax rate cut and labour market reforms should follow, according to the survey.
"They are all important. But for Japan's stable growth in the medium- to long-term view in this ageing society, it's imperative to pave the way for a stable social security system," said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance.
"If a stable government is secured as a result of the election, it will help to solve pending problems."
(Polling by Sarbani Haldar and Shaloo Shrivastava; Editing by Jacqueline Wong)