The economy will grow 1.5 percent in real terms in fiscal 2015, with the downturn in crude oil prices expected to bolster corporate profits and the latest stimulus package standing by to prop up domestic demand, the Abe administration projected Monday.
In nominal terms, gross domestic product will expand 2.7 percent, the administration said, suggesting it believes the end of nearly two decades of deflation is coming into sight.
The growth forecasts will be used to calculate tax revenue estimates, which are the basis for compiling the budget. The Cabinet plans to approve the fiscal 2015 budget on Wednesday.
Crude oil prices are expected to plummet to an average of $69.3 per barrel in fiscal 2015, which begins April 1, from $94.5 in fiscal 2014. This is expected to improve Japan’s trade balance and shore up consumer confidence, the administration said. Japan has been importing nearly all of its energy since the nation’s reactors were taken offline after the March 2011 Fukushima nuclear crisis.
“The economy is expected to recover on the back of robust private-sector demand,” economic and fiscal policy minister Akira Amari told reporters later Monday, pledging to pursue the steps needed to create a “virtuous economic cycle.”
But the Cabinet Office said the economy will shrink 0.5 percent in inflation-adjusted terms for fiscal 2014, with last year’s consumption tax hike and the yen’s rapid drop driving up prices at home and hurting private spending.
If the economy worsens as forecasted for the year, real GDP will have contracted for the first time since 2009, when Japan sank into recession after the onset of the global financial crisis the previous year.
In the meantime, the Abe administration said the economy will grow 1.7 percent in nominal terms in fiscal 2014, meaning the nominal rate of growth would surpass the real rate for the first time in 17 years, apparently reflecting the inflation being generated by the Bank of Japan.
On Dec. 27, the Cabinet endorsed an emergency economic stimulus package worth about ¥3.5 trillion to prop up households and regional economies beset by the tax hike and higher prices.
The consumer price index is expected to gain 1.2 percent in fiscal 2014, excluding the effects of the 3-point tax hike, and climb 1.4 percent in fiscal 2015, the administration said.
The figures, however, indicate the BOJ may fail to achieve its 2 percent inflation target next year, despite its radical monetary easing.
With prices rising moderately, Japan’s nominal GDP is forecast to reach ¥504.9 trillion in fiscal 2015, compared with the ¥491.4 trillion projected for fiscal 2014. GDP would thus surpass ¥500 trillion for the first time since 2007.
With corporate profits set to improve, the Cabinet Office said capital spending, which Prime Minister Shinzo Abe views as vital to economic growth, will expand a real 5.3 percent in fiscal 2015, up sharply from the 1.2 percent estimated for fiscal 2014.
Consumer spending — which accounts for around 60 percent of GDP — is expected to contract 2.7 percent in fiscal 2014, before recovering to 2.0 percent in fiscal 2015, the administration said.
Exports are likely to grow 8.6 percent in fiscal 2015, up from the 6.8 percent expansion projected for this fiscal year, due in part to the yen’s drop, while imports are forecast to climb 2.5 percent in fiscal 2014 and 3.5 percent in 2015.
The office anticipates the dollar-yen exchange rate will average ¥118.7 in fiscal 2015, surging from the projected rate of ¥109.9 in fiscal 2014.
A falling yen usually supports exports by making Japanese products cheaper abroad and raising the value of overseas revenue when repatriated to yen, though it pushes up the cost of imported goods.
On employment, the administration said the jobless rate is likely to improve to 3.6 percent in fiscal 2014 and 3.5 percent in fiscal 2015.