Business / Economy

IMF cuts Japan's GDP forecast for third time this year

Bloomberg

The International Monetary Fund has cut its 2019 economic growth forecast for Japan for the third time this year amid heightened risks from the global slowdown and is calling on the government not to tighten its spending stance for now.

The IMF reduced its growth forecast from 0.9 percent to 0.8 percent, with the economy set to decelerate to 0.5 percent next year, matching the country’s potential growth rate.

Speaking in Tokyo at the conclusion of the fund’s annual mission to review the economy, IMF Managing Director Kristalina Georgieva called for continued spending to prop up growth and prices as the resilience of Japan’s domestic demand is being tested by the synchronized global slowdown.

The fund also made several recommendations for the Bank of Japan, including the targeting of shorter-term bonds, while reiterating its call for more ambitious structural reforms to boost growth.

“Fiscal policy should be supportive to protect near-term growth and promote inflation momentum,” Georgieva said while reminding policymakers in Japan that eventually they would still need to rein in the towering public debt. “Beyond the short run, a clear commitment to long-term fiscal sustainability is essential.”

The fund said Japan should not tighten its spending stance for now, suggesting that measures aimed at supporting growth through the consumption tax hike should be extended. Those measures, including rebates for cashless payments and tax breaks on housing and car purchases, have already helped smooth out demand, the fund said.

Public money could also be used to raise pay for workers in the health care sector, offer incentives for firms to raise wages and widen the availability of child care facilities, the fund added.

The Japanese economy has been resilient despite weakness in eternal demand, but that “will be tested — most immediately by a synchronized global slowdown, and over the medium term by uncertainties in the world economy, and by its own demographic trends,” Georgieva said.