WASHINGTON/DAVOS, SWITZERLAND – The International Monetary Fund is forecasting that Japan’s economy will grow 0.7 percent this year, up 0.2 percentage point from its earlier estimate due to stimulus measures to mitigate the impact of the Oct. 1 consumption tax hike.
The Washington-based institution also said global growth appears to have bottomed out, but there is no rebound in sight and risks ranging from trade tensions to climate shocks make the outlook uncertain.
For 2020 and 2021, the IMF trimmed its global growth forecasts, mostly due to a sharper than expected slowdown in India and other emerging markets, even as it said the U.S.-China trade deal has added to hopes the downturn is bottoming out.
The IMF said it revised upward Japan’s growth rate for 2020 due to the “anticipated boost” from government stimulus measures passed last month following the consumption tax increase to 10 percent from 8 percent.
The government approved a package of stimulus measures worth ¥26 trillion as it seeks to shield the Japanese economy from weak overseas demand, the fallout from the consumption tax hike and the risk of a slowdown after this summer’s Tokyo Olympics.
Japan’s economic growth is likely to moderate to 0.5 percent in 2021, unchanged from the October estimate, as the impact of fiscal stimulus fades, the IMF said.
With trade wars weighing on exports and investment, the global economy expanded by 2.9 percent last year, its slowest pace since the global financial crisis, despite near synchronized central bank easing that added half a percentage point to global growth.
“We have not reached a turning point yet,” IMF Managing Director Kristalina Georgieva told a news conference on the eve of the annual meeting of the World Economic Forum in the Swiss ski resort of Davos. “The reality is that global growth remains sluggish.
“Just in the very first weeks of the new year we have witnessed increased geopolitical tensions in the Middle East and we have seen the dramatic impact that climate shocks could have. We saw them in Australia as well as parts of Africa.”
The IMF now sees growth at 3.3 percent this year, below its October projections for 3.4 percent. It also cut the 2021 forecast to 3.4 percent from 3.6 percent.
The reductions reflect the IMF’s reassessment of economic prospects for a number of major emerging markets, notably India, where domestic demand has slowed more sharply than expected amid a contraction of credit and stress in the nonbank sector.
The signing of a partial trade deal between the United States and China last week, which has brought a temporary truce in their trade war, led the IMF to lift the projection of China’s growth this year by 0.2 point to 6.0 percent.
The so-called phase one agreement includes a U.S. plan to alleviate some of its punitive tariffs imposed on Chinese goods in exchange for Beijing’s commitment to make additional purchases of U.S. products and strengthen intellectual property protections.
In the United States, growth is projected at 2.0 percent in 2020, 0.1 percentage point lower than the earlier estimate, while the eurozone economy is projected to grow 1.3 percent in 2020, also a downward revision of 0.1 point.