WASHINGTON – The International Monetary Fund on Wednesday left its growth estimate for the Japanese economy this year steady at 1.2 percent despite the latest recession, after determining that the stimulative extra budget will likely spur a temporary recovery in the short term.
“The recession is expected to be short-lived because the effects of temporary factors, such as the car subsidy and disruptions to trade with China, will subside,” the IMF said in an update to its semiannual World Economic Outlook report.
“And a sizeable fiscal stimulus package and further monetary easing will give growth at least a near-term boost, with support from a pickup in external demand and a weaker yen,” it said.
As for 2014, however, the Washington-based organization slashed its Japan forecast to 0.7 percent, compared with 1.1 percent three months earlier.
The IMF meanwhile trimmed its outlook for global growth in 2013 to 3.1 percent from 3.6 percent, while downgrading its 2014 estimate to 4.1 percent from an earlier projected 4.2 percent.
“If crisis risks do not materialize and financial conditions continue to improve, global growth could be stronger than projected,” the report said.
In a media briefing, IMF chief economist Olivier Blanchard said he thought current conditions warranted “some cautious optimism” because “acute risks” have declined — most notably the possibility that the euro currency union might disintegrate.
But he said growth remains weak through much of the developed world and is especially “not enough to make a dent in the unemployment rate,” which is projected to remain at an elevated 8 percent among industrialized countries.
The fund’s forecast puts it in the same ballpark as those by World Bank economists who last week projected slowing growth and continued divergence among fast-growing economies in Asia and Latin America, stodgy but consistent growth in the United States, and recession in the heart of Europe.
U.S. growth is projected at 2 percent, about a tenth of a percentage point below the IMF’s October figure and less optimistic than that projected by the U.S. Federal Reserve. Growth has essentially stalled in the United Kingdom and Japan, with Japan only projected to grow next year because of major new government stimulus spending.
A possible exit by the United Kingdom from the European Union could pose another shock in the coming years if it disrupts trade or financial ties with the continent. U.K. Prime Minister David Cameron has promised an up or down vote on the issue.
However, Blanchard said he would “punt” on any discussion of the fallout, because that referendum is several years off.
The prospects for the eurozone remain dimmest of all: The IMF expects the 17-nation currency region to remain in recession for the year. The IMF previously forecast that the eurozone would grow by 0.2 percent in 2013. Between given tepid growth in Germany and France and the continued decline in Italy and Spain, the region’s economy is expected to contract by 0.2 percent over the year.
The forecast is further evidence of how difficult it is proving for the region to impose austerity on public spending and generate short-term growth.
Actions by European governments and the European Central Bank have largely restored stability to European financial markets. But that has not carried through to the broader economy. The central bank of Spain on Wednesday, for example, said the country’s economy shrank at an annual rate of 1.7 percent in 2012 — a steeper contraction than the IMF’s updated forecast.
Developing countries are expected to record solid growth of 5.5 percent over the year, led by China at 8.2 percent. That represents a slowdown in China from the 10 percent and higher levels common there in the past 20 years, but it is considered a healthy slowdown as the country relies less on exports and more on internal spending.