The Cabinet Office on Wednesday revised upward its official economic growth forecast for fiscal 2004 to 3.5 percent in real terms from the initially projected 1.8 percent, citing strong private-sector demand and exports.
The new figure, presented at a meeting of the Council on Economic and Fiscal Policy, would represent the nation’s fastest expansion in eight years. In fiscal 2003, the gross domestic product grew a real 3.2 percent.
Real GDP, through May, has grown for 28 consecutive months, approaching the record 31 months of consecutive growth logged beginning in December 1954.
The Cabinet Office now estimates that private-sector demand in fiscal 2004 will grow 2.6 percent in real terms, compared with the 1.1 percent growth initially forecast. It also revised upward the strength of overseas demand for the current year, and said it will push up real GDP by 0.5 percentage points, up from 0.2 points.
A separate report submitted by private-sector members of the government’s key economic panel projects real growth at a little more than 2 percent for fiscal 2005.
With strong growth in the economy, the panel members said now is the time for the government to clean up public debts by prioritizing spending and crafting a frugal budget for fiscal 2005.
The overall size of the budget for the next fiscal year should be kept at or below the 82.1 trillion yen earmarked for the current year, they said.
“We believe growth will continue on domestic demand, although (economic) risks do exist, such as rising long-term interest rates and the state of the global economy,” says the private-sector members’ report. “Taking this into account . . . the fiscal 2005 budget should further push forward structural reform.”
During the panel meeting, Finance Minister Sadakazu Tanigaki said spending in fiscal 2005 should effectively be kept at or below that of the current year.
The stance comes as policymakers attempt to take a stab at the government’s fiscal deficit burden, which has ballooned due to massive fiscal spending projects aimed at resuscitating the economy over the last decade.
Combined with debt issued by local governments, the nation’s public debt is expected to reach 719 trillion yen in the current fiscal year — about 140 percent of GDP in fiscal 2003, according to the Finance Ministry.
This debt has been described by economists as a ticking time bomb.
To curb growing debt, Japan needs to face up to the need for better efficiency in public expenditures and tax hikes, said Donald Johnston, secretary general of the Paris-based Organization for Economic Cooperation and Development.
“No one likes to speak of tax increases, especially when it could put a dampening effect on what looks like a strong recovery,” Johnston told a news conference in Tokyo earlier in the day.
However, he noted that a hike in income tax may be necessary, as 80 percent of taxpayers are in the lowest 10 percent income tax bracket.