/

Economy forecast to grow 1.4% and CPI to rise 1.2% in fiscal 2014, excluding tax hike impact: government

Kyodo

The economy will grow 1.4 percent in fiscal 2014 on the back of healthy domestic demand amid inflation of 1.2 percent, excluding the effects of the consumption tax hike in April, the government forecast Saturday.

The projection in real terms compares with estimated growth of 2.6 percent in the current fiscal year, indicating the economy will stay on a recovery path despite fears that the hike in the national sales tax to 8 percent from 5 percent April 1 will stifle consumer spending and investment.

The government’s inflation projection signals a possible end to nearly two decades of deflation under the Bank of Japan’s ultra-easy monetary policy.

In its latest forecast, the central bank projected a 1.3 percent rise in fiscal 2014, which begins next April. Since introducing massive monetary stimulus last spring, the BOJ has targeted 2 percent inflation in about two years.

Economic and fiscal policy minister Akira Amari, who has been hospitalized for treatment of early-stage tongue cancer, released a statement saying a possible economic slowdown triggered by the tax hike is a concern, but that the economy is “expected to continue to recover, buoyed by robust domestic demand” in next year.

The GDP deflator, a wider price gauge than the consumer price index, is meanwhile forecast to inch up 0.5 percent even if the impact of the consumption tax increase is excluded, the government added.

Nominal GDP will reach ¥500.4 trillion in the next fiscal year, up ¥16.2 trillion from 2013, according to the government. It would be the first time in seven years for nominal GDP to top ¥500 trillion, and would see it recover to the level seen before the 2008 world economic crisis.

If the projections are realized, the rate of nominal GDP growth would exceed the real, or inflation-adjusted, rate for the first time in 17 years.

The growth forecasts will be used as a basis for the government’s tax revenue estimates in drafting the fiscal 2014 budget. The Cabinet plans to approve the initial budget Tuesday.

Amid improvement in corporate profits, the government said corporate capital spending, which Abe views as a pillar of economic growth, will expand a real 4.4 percent next year, up from a 0.4 percent rise in fiscal 2013.

But consumer spending is expected to grow only 0.4 percent in the wake of the consumption tax hike, compared with a 2.5 percent rise in the current fiscal year, and housing investment is likely to fall 3.2 percent following a 7.3 percent jump, the government said.

Exports are projected to grow 5.4 percent in fiscal 2014 from 4 percent this year due in part to a global economic recovery, while imports will rise 3.5 percent after soaring 4.2 percent in fiscal 2013, suggesting the nation’s trade balance will improve slightly.

Japan is certain to log a record trade deficit this year, as the depreciation of the yen and expanding demand for energy have kept driving up fossil fuel import costs. The government anticipates the dollar will average ¥100.0 in the next fiscal year, up from ¥99.2 in fiscal 2013.

On the jobless rate, the government forecasts it will fall to 3.7 percent in fiscal 2014 from 3.9 percent in the previous year.

In an effort to cushion the potentially negative economic impact of April’s tax hike, the Cabinet approved a ¥5.5 trillion stimulus package Dec. 5, pledging to create at least 250,000 jobs. The Cabinet Office estimated the latest stimulus is likely to push up GDP by around 0.7 percentage point in real terms.