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Japan's economic growth forecast for FY 2014 cut to 1.2%


The government on Tuesday cut its forecast for Japan's economic growth in fiscal 2014 to 1.2 percent from 1.4 percent in real terms amid lingering fears that the April 1 consumption tax hike, the first in 17 years, may continue to weigh on domestic demand.

But the Cabinet Office said the nation's nominal gross domestic product is predicted to grow 3.3 percent in the current fiscal year through March 2015, unchanged from the previous estimate last December, with the Bank of Japan's drastic monetary easing helping push up prices.

If the projections are realized, the rate of GDP growth would top the real, or inflation-adjusted, rate for the first time in 17 years, suggesting the world's third-largest economy is on the verge of escaping from nearly two decades of deflation.

The office said in a statement that it will keep an eye on the aftermath of the tax increase, but the country's economy is expected to enter a "virtuous cycle" where a rise in consumption prompts companies to increase production, leading to wage growth, resulting in more consumption as the cycle repeats.

Prime Minister Shinzo Abe's administration said the consumer price index is likely to rise 1.2 percent, excluding the impact of the 3-percentage-point tax hike to 8 percent.

The government projects private spending, which accounts for around 60 percent of GDP, to expand 0.3 percent in fiscal 2014, downgraded from a 0.4 percent rise, while business investment will climb 4.9 percent, raised from a 4.4 percent increase.

In fiscal 2015, the economy is predicted to expand 1.4 percent in real terms and 2.8 percent in nominal terms, respectively, as the second round of the consumption tax hike to 10 percent may affect private spending and investment, the office said.

The nation's CPI is expected to grow 1.8 percent, excluding the impact of the 2-percentage-point tax increase, it said.

The Cabinet Office presents revised projections every summer based on its own calculations. The latest estimate was presented to a meeting of the Council on Economic and Fiscal Policy on Tuesday.

In the meeting of the government's key economic panel, Finance Minister Taro Aso explained an outline of the guideline for the compilation of an initial fiscal 2015 budget.

Aso urged ministries and government agencies to cut discretionary policy spending such as that for public works projects, while indicating his ministry plans to set aside up to 4 trillion yen for priority economic growth measures.

The budget guideline for the year from April 2015, scheduled for Cabinet approval on Friday, is designed to achieve both economic growth and fiscal consolidation.

The priority steps are expected to include those dealing with the population decline and others mapped out in the government's revised economic growth strategy released last month.

"We will compile a budget, aiming to use the fruits of Abenomics for the invigoration of local economies," Abe said during the meeting, referring to his policies centering on aggressive monetary easing and massive fiscal spending.

Aso, meanwhile, said at a press conference after the meeting that the government will make every effort to curb the new issuance of Japanese government bonds for the next fiscal year.