WASHINGTON (Kyodo) The International Monetary Fund has raised its projection for Japan’s economic growth in 2005 in expectation of a “strong rebound,” but stressed Tokyo still needs to continue reforms.
In its semiannual World Economic Outlook report, released Wednesday, the IMF urged Japan to promote structural reforms, including “more ambitious” fiscal consolidation, and maintain quantitative monetary easing until deflation has been beaten “decisively.”
The report projects Japan will register economic growth of 2.0 percent in terms of real gross domestic product, up 1.2 percentage points from the April estimate but still down from 2.7 percent in 2004. It expects the same growth in 2006, unchanged from April.
As for the world economy, the IMF forecast real GDP growth of 4.3 percent in 2005, unchanged from April but down from 5.1 percent in 2004, with the United States and China continuing to lead the expansion.
The same growth is expected for 2006, down 0.1 point from April.
The IMF said it sees the impact on the U.S. economy from Hurricane Katrina’s devastation of the Gulf Coast, including major oil refining infrastructure, as “moderate.” It expects the U.S. to grow 3.5 percent in 2005, revised down only 0.2 point from April and down from 4.2 percent in 2004. U.S. growth in 2006 is projected at 3.3 percent, down 0.3 point from April.
“Japan’s economy is regaining momentum, with GDP growth rising sharply in the first quarter of 2005 and recent data pointing to continued, if more sedate, expansion thereafter,” the IMF said in the report.
However, it goes on, there are still downside risks, particularly given the continued rise in oil prices and the possibility of renewed upward pressure on the yen due to large global current account imbalances.
The IMF stressed the importance of the Bank of Japan maintaining its “very accommodative monetary policy stance” until “deflation is decisively beaten.”
As for a postdeflation policy framework, the IMF called it “useful” to announce an “explicit medium-term inflation objective” to guide expectations when inflation returns.
Japan must also continue its structural reforms to “raise productivity, allow the Japanese economy to reap the full benefits of globalization, and cope with ongoing population aging,” the IMF said.
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