WASHINGTON – The World Bank has raised its forecast for Japan’s economic growth this year to 1.5 percent, up 0.6 percentage point from its estimate in January, due to rising exports and a pickup in capital spending in preparation for the 2020 Olympic Games.
“Growth has picked up in 2017, supported by a recovery in external demand. Exports have strengthened,” the bank said Sunday of the significant upgrade in its semiannual Global Economic Prospects report. “The pickup in capital spending has been supported by elevated corporate profits as well as preparations for the 2020 Tokyo Olympics.”
The world economy is projected to expand 2.7 percent this year, unchanged from the January forecast, but risks to the outlook “remain tilted to the downside,” the report says, citing “increased trade protectionism” and “elevated economic policy uncertainty” in a veiled reference to U.S. President Donald Trump’s “America First” policy.
Referring to the Japanese economy, which posted estimated growth of 1.0 percent in 2016, the report says the Bank of Japan’s accommodative monetary policy and the government’s fiscal stimulus measures are likely to propel the economy to expand 1.0 percent again in 2018.
But the planned consumption tax hike to 10 percent from 8 percent is likely to slow the growth rate to 0.6 percent in 2019. The projections for 2018 and 2019 are up 0.2 point, respectively, from the January estimate.
The World Bank attributed the 2017 global economic growth, which would outpace the estimated 2.4 percent growth for last year, to a recovery in industrial activity and a pickup in global trade.
Global trade growth is expected to rebound to 4 percent this year from a post-financial crisis low of 2.5 percent last year, despite “rising trade policy uncertainty,” apparently over Trump’s “America First” policy and Britain’s planned exit from the European Union.
The recovery in trade growth stemmed from “stronger import demand from major advanced economies, increased trade flows to and from China, and a diminished drag from weak import demand from commodity-exporting emerging market and developing economies,” the report says.
“The reassuring news is that trade is recovering,” said World Bank chief economist Paul Romer. “The concern is that investment remains weak. In response, we are shifting our priorities for lending toward projects that can spur follow-on investment by the private sector.”
World economic growth is expected to accelerate to 2.9 percent in 2018 and stay at the same rate in 2019, both unchanged from the January estimate, according to the Washington-based development institution.
The U.S. economy is forecast to expand 2.1 percent this year, down 0.1 point from the January projection but up from an estimated 1.6 percent last year. The world’s largest economy is expected to grow 2.2 percent in 2018 and 1.9 percent in 2019.
Referring to proposed tax cuts and infrastructure spending, as well as potential trade restrictive measures by the Trump administration, the report says that “the possibility of significant additional policy changes presents upside as well as downside risks to the U.S. growth forecast for 2018-2019.”
“Tax cuts and infrastructure programs could lead to stronger than expected growth in the short term, but also to a more rapid increase in policy interest rates,” it says in reference to concern about faster than expected credit tightening by the Federal Reserve, which could affect some developing economies by triggering an outflow of capital and investment.
“In contrast, should substantial changes in trade policies emerge, they might trigger retaliatory measures, damaging activity in both the United States and its trading partners,” the report says.
Backed by rising exports and manufacturing activity, the eurozone economy is projected to grow 1.7 percent in 2017, 1.5 percent in 2018 and another 1.5 percent in 2019, compared with an estimated 1.8 percent in 2016, according to the report.
The Chinese economy is likely to expand 6.5 percent in 2017, 6.3 percent in 2018 and another 6.3 percent in 2019, against an estimated 6.7 percent in 2016.