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IMF raises 2013 economic growth forecast for Japan

Revision reflects strong impact of monetary easing

Kyodo, AP

The International Monetary Fund on Tuesday raised its economic growth estimate for Japan in 2013 to reflect the impact of the country’s monetary easing policy, while cutting its growth projections for the United States, China and the overall global economy.

In an update to its semiannual World Economic Outlook, the IMF projected that 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 April forecast.

IMF chief economist Olivier Blanchard told reporters the impact of ” ‘Abenomics’ has been stronger than expected,” referring to the set of monetary, economic and fiscal measures pursued by Prime Minister Shinzo Abe to beat deflation and boost Japan’s economy.

But Blanchard also warned, “The risk is that investors will become worried about the sustainability” and high yields of Japanese government bonds unless Abe follows up on his promise to improve the country’s debt-ridden finances and promote structural reforms.

The IMF trimmed its estimate for Japanese economic growth in 2014 to 1.2 percent from 1.4 percent in its earlier report, citing “the weaker global environment.”

The IMF also projected the global economy will expand 3.1 percent this year, down from its earlier estimate of 3.3 percent, before growing 3.8 percent in 2014, also down from its earlier forecast of 4.0 percent.

“The world economy remains in a three-speed mode,” said Blanchard. “Emerging markets are still growing rapidly. The U.S. recovery is steady, but much of Europe continues to struggle.”

The Washington-based organization said its lowered global growth projection was “driven to a large extent by appreciably weaker domestic demand and slower growth in several key emerging market economies, as well as by a more protracted recession in the euro area.”

For the United States, the IMF lowered its growth estimate to 1.7 percent from 1.9 percent for this year and to 2.7 percent from 3.0 percent for next year.

The world’s largest economy “expanded at a weaker pace, as stronger fiscal contraction weighed on improving private demand,” the IMF report said.

The IMF said the possibility of a more drawn-out slowdown in developing countries is a new risk that has emerged since April. Blanchard noted a clear downward trend in China, Russia, Brazil and India and attributed it to slowdowns in domestic demand and consumption but also to weaker exports because of sluggishness in advanced economies.

China’s 2013 forecast was scaled back to 7.8 percent compared with 8.1 percent in April. For 2014, it fell to 7.7 from 8.3 percent.

“My impression is the country where there is the largest risk in terms of large decrease in growth is China,” said Blanchard.

The IMF said the world’s second-largest economy has become unbalanced with too much investment and too little consumption. That investment, largely financed through China’s shadow banking system, has grown rapidly during the global financial crisis of the past few years.

In addition to slowing growth, China is seeing a credit squeeze as it tries to tackle the hazards of looming debts that are not reported on bank balance sheets but lurk throughout the country’s murky, still developing financial system. That off-balance-sheet lending, or shadow financing, could threaten financial stability if it is not reined in.

Some experts see the move to crack down on excess leverage as an overdue and necessary effort to address structural problems in China’s state-dominated economy.

The IMF was also bearish about the eurozone, saying it will contract 0.6 percent, faster than 0.3 percent in its earlier estimate. It maintained the prospect of the eurozone staging a turnaround in 2014, while cutting its growth projection to 0.9 percent from 1.1 percent in the April forecast.

The report attributed the slump in the eurozone to “low demand, depressed confidence and weak balance sheets.”

  • Nobuo Kinoshita

    Hope Japan’s economy so sustainably keeps growing that it could lead Asia’s economy.