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April-June GDP forecast faces upgrade to 3%

Kyodo, Bloomberg

Economists are projecting that the economy grew at an annualized rate of around 3 percent in the three months to June, surpassing the government’s growth target for raising the consumption tax next April.

The projections, offered in terms of inflation-adjusted gross domestic product, were revealed in a Kyodo survey.

The latest supplementary budget and improving corporate earnings were cited as factors leading to the projected growth. If the government’s preliminary GDP reading, due out Aug. 12, turns out to be in line with the average projection of the surveyed economists, it will encourage Prime Minister Shinzo Abe to go ahead with the planned consumption tax hike.

Legislation enacted last year states that the 5 percent tax will be raised to 8 percent next April and to 10 percent in October 2015, and sets average real GDP growth of about 2 percent from fiscal 2011 to 2020 as a nonbinding target for raising the tax.

But there is lingering concern even within the administration and ruling parties that the planned tax hike could hamper growth. Abe is expected to make a final decision on whether to raise the tax around October, while taking into account employment conditions and overseas economic developments. Finance Minister Taro Aso indicated earlier this month that wage growth would be needed before the levy is hiked.

Ryutaro Kono, chief economist at BNP Paribas Securities, projected that the economy grew 3.5 percent in the April-June quarter, noting public investment is picking up again on the back of the supplementary budget.

Mitsumaru Kumagai, chief economist at Daiwa Institute of Research, is expecting 3 percent growth due to improved consumer sentiment amid rising stock prices. “Given the current situation, the consumption tax should be raised as planned,” he said.

The Japan Center for Economic Research said July 11 that GDP was expected to grow 3.03 percent in the April-June period, according to the average projection of 41 private-sector economists. The figure compares with a revised expansion of 4.1 percent in the January-March quarter.

On Friday, Abe adviser Koichi Hamada said he is cautious about hiking the sales tax soon.