The government on Tuesday cut its forecast for economic growth in fiscal 2014 to 1.2 percent from 1.4 percent in real terms amid lingering fears that the April 1 consumption tax hike — the first in 17 years — may continue to weigh on domestic demand.
But the Cabinet Office said nominal gross domestic product is predicted to grow 3.3 percent in the current fiscal year through next March, unchanged from the previous estimate in December, with the Bank of Japan’s drastic monetary easing helping push prices up.
If the projections come to fruition, the rate of GDP growth would top the real, or inflation-adjusted, rate for the first time in 17 years, suggesting the economy is finally on the verge of escaping from nearly two decades of deflation.
The Cabinet Office said it will keep an eye on the tax hike’s effects, but the economy is expected to enter a “virtuous cycle,” where a rise in consumption prompts companies to increase production, leading to wage growth, resulting in more consumption as the cycle repeats.
Prime Minister Shinzo Abe’s administration said the consumer price index is likely to rise 1.2 percent, excluding the impact of the sales tax hike.
The government projects private spending, which accounts for around 60 percent of GDP, to expand 0.3 percent in fiscal 2014, downgraded from a 0.4 percent rise, while business investment will climb 4.9 percent, jumping from a 4.4 percent increase.
In fiscal 2015, the economy is predicted to expand 1.4 percent in real terms and 2.8 percent in nominal terms as the second round of the consumption tax hike — to 10 percent — could affect private spending and investment, the office said.
The CPI is expected to grow 1.8 percent, excluding the impact of the next tax increase, it said.
The Cabinet Office presents revised projections every summer based on its own calculations. The latest estimate was presented Tuesday at a meeting of the Council on Economic and Fiscal Policy.
In the meeting of the key government economic panel, Finance Minister Taro Aso explained an outline of the guidelines for the compilation of an initial fiscal 2015 budget.
Aso urged ministries and government agencies to cut discretionary policy spending, such as that for public works projects, while indicating his ministry plans to set aside up to ¥4 trillion for priority economic growth measures.
The budget guidelines for the year from April 2015, scheduled for Cabinet approval Friday, are designed to boost both economic growth and fiscal consolidation.
The steps taking top priority are expected to include those dealing with the population decline and others mapped out in the government’s revised economic growth strategy released last month.
“We will compile a budget, aiming to use the fruits of ‘Abenomics’ for the invigoration of local economies,” Abe said during the meeting, referring to his policies centering on aggressive monetary easing and massive fiscal spending.
Aso, meanwhile, said at a press conference after the meeting that the government will make every effort to curb the new issuance of Japanese government bonds for the next fiscal year.
In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.