WASHINGTON – The World Bank on Tuesday forecast Japan’s economic growth at 1.3 percent in 2018, decelerating from an estimated 1.7 percent increase in 2017 as fiscal stimulus is withdrawn and export growth moderates.
Global growth is projected to edge up to 3.1 percent this year from an estimated 3.0 percent last year as the cyclical momentum continues, the Washington-based development institution said in its semiannual Global Economic Prospects report.
Japan’s growth rate is expected to slow further to 0.8 percent in 2019, “in line with average potential growth estimates,” and to 0.5 percent in 2020 due to a planned 2-percentage-point increase in consumption tax to 10 percent.
“The planned consumption tax hike in October 2019 is expected to have a negative effect on growth in 2020, which is projected to slow temporarily to 0.5 percent,” the report said. “Population aging and a shrinking labor force continue to weigh on long-term growth prospects.”
On the global outlook, the bank said, “A broad-based cyclical global recovery is under way, aided by a rebound in investment and trade, against the backdrop of benign financing conditions, generally accommodative policies, improved confidence, and the dissipating impact of the earlier commodity price collapse.”
Global growth is expected to be sustained over the next few years, it said, forecasting that the world economy will expand 3.0 percent in 2019 and 2.9 percent in 2020.
“The broad-based recovery in global growth is encouraging, but this is no time for complacency,” said World Bank President Jim Yong Kim. “This is a great opportunity (for countries) to invest in human and physical capital.”
But risks to the outlook remain tilted to the downside, the report said, citing “an abrupt tightening of global financing conditions,” or faster-than-expected credit tightening in the United States, “increased protectionism” — a veiled reference to U.S. President Donald Trump’s “America First” trade policy — and “rising geopolitical tensions” surrounding North Korea and the Middle East. “Geopolitical risks spiked during 2017 and remain above historical averages, mainly reflecting tensions on the Korean Peninsula, border disputes and territorial claims in Asia, and strains in the Middle East,” it said.
“A renewed and sustained rise in geopolitical tensions, especially those involving systemically large economies, could dampen confidence and lead to bouts of financial market volatility, both in the affected countries and their major trading partners.”
Global trade growth is set to moderate to an average of 4 percent in 2018-2019 from 4.3 percent in 2017 due to a projected deceleration of capital spending in advanced economies and China.
According to the report, the U.S. economy is forecast to expand 2.5 percent in 2018, up from an estimated 2.3 percent in 2017 due to tax cuts being implemented by the Trump administration. “Recently legislated corporate and personal income tax cuts are expected to provide a lift to activity over the forecast horizon — particularly to investment, by lowering the statutory corporate tax rate and by allowing full expensing of new equipment,” it said.
The U.S. growth rate is likely to slow to 2.2 percent in 2019 and 2.0 percent in 2020. “The benefits of fiscal stimulus will likely be constrained because the economy is already operating at near full capacity and the pace of monetary policy normalization might slightly accelerate.”
The Chinese economy is projected to grow 6.4 percent in 2018 and 6.3 percent in 2019, against an estimated 6.8 percent in 2017, as policies tighten.
“Key downside risks to the outlook stem from financial sector vulnerabilities, the possibility of increased protectionist policies in advanced economies, and rising geopolitical tensions” over nuclear-armed North Korea, the report said.
With domestic demand losing some momentum and policy stimulus gradually unwinding in Europe, the eurozone economy is expected to grow 2.1 percent in 2018 and 1.7 percent in 2019, compared with an estimated 2.4 percent in 2017.