The International Monetary Fund on Tuesday raised its growth estimate for Japan and the world economy this year and in 2013, due partly to eased risks in the eurozone, while prodding Japan and the United States to take additional monetary easing steps to support growth.
In its semiannual World Economic Outlook report, the IMF projected the Japanese economy will grow 2.0 percent this year in terms of inflation-adjusted gross domestic product, up 0.4 percentage point from its January estimate.
In 2013, the Japanese economy is forecast to grow 1.7 percent, up 0.1 point from the January estimate, although the pace of recovery will be slower than this year as a decline in reconstruction spending after the March 11, 2011, disasters is expected, the IMF said.
“Given very low domestic inflation pressure, further monetary easing may be needed in Japan to ensure that it achieves its inflation objective over the medium term,” the report says, adding Washington may also need additional monetary easing if its economic activity threatens to slow.
The Washington-based organization is also somewhat optimistic about the global recovery, projecting that the world economy will expand 3.5 percent in 2012, up 0.2 point compared with its January estimate, and rise 4.1 percent in 2013, up 0.1 point.
“Global prospects are gradually strengthening again, but downside risks remain elevated,” the IMF said. The growth estimate for the advanced economies was lifted to 1.4 percent in 2012 from 1.2 percent in the January projection and that for 2013 was raised to 2.0 percent from 1.9 percent.
The IMF forecasts that the U.S. economy will gain 2.1 percent this year and 2.4 percent the following year, up 0.3 point and 0.2 point from its January estimates.
The eurozone, struggling to recover from the sovereign debt crisis, is projected to shrink by 0.3 percent in 2012, revised upward from a 0.5 percent contraction estimated in January, while the single-currency zone is expected to grow by 0.9 percent in 2013, against an earlier estimate of 0.8 percent growth.
“For most economies, including the euro area, growth is now expected to be modestly stronger than predicted” in the January report, the multinational lender said, adding “the recent improvements are very fragile” and downside risks “continue to loom large.”
While welcoming recent developments in Europe, including the introduction of three-year longer-term refinancing operations by the European Central Bank and a stronger European firewall and fiscal adjustment programs, the fund warned that “with no further action, however, problems could easily flare up again in the euro area.”
The IMF said its immediate concern is still that “further escalation of the euro area crisis will trigger a much more generalized flight from risk.” Under such a negative scenario, global and eurozone output could decline by 2 percent and 3.5 percent over two years, relative to the estimates in the report, the fund said.
The IMF noted that geopolitical uncertainty could trigger a sharp increase in oil prices, saying a 50 percent hike in oil prices would lower global output by 1.25 percent.
Turning to emerging and developing economies, the IMF maintained robust views on their growth outlooks, forecasting growth of 5.7 percent this year, up 0.2 point from its January estimate, and 6.0 percent in 2013, up 0.1 point.
The IMF said the Chinese economy is estimated to grow 8.2 percent in 2012, up 0.1 point from its forecast three months earlier, and rise 8.8 percent in 2013, unchanged from its previous estimate.
The fund expects India’s economy to grow 6.9 percent this year, down 0.1 point from its January estimate, while projecting it will expand 7.3 percent in 2013, unchanged from its earlier forecast.