IMF Cuts 2005 Japan Economic Growth Forecast to 0.8% From 2.3%
April 13 (Bloomberg) -- The International Monetary Fund lowered its 2005 growth forecast for Japan, citing an export slowdown in the world's second-biggest economy.
The economy will grow 0.8 percent, the fund said in its semi- annual World Economic Outlook released today in Washington. That compares with September's 2.3 percent growth forecast. Japan will expand 1.9 percent next year, the report said.
Japan fell into its fourth recession since 1991 last year as export growth and consumer spending faltered after the economy grew at a 6 percent annualized pace in the first quarter. Any export boost from growth in the U.S. and China may be limited as manufacturers reduce inventories of electronic goods that piled up last year, the fund said.
``The stagnation of the economy during the last three quarters of 2004 has raised concerns about the short-term outlook,' the report said. Any ``rebound would be tempered as firms run down their inventories' particularly for electronics products, it said.
Japan's economy barely grew in the final three months of last year, expanding at a 0.5 percent annualized pace as manufacturers accumulated stockpiles, after contracting in the second and third quarters.
A change in how Japan calculates gross domestic product accounted for about 1 percentage point of the new forecast, the report said. The government last year began using a chain-weighted basis to measure the size of the economy.
Deflation
Rising corporate profitability will help support capital spending, the report said. Capital spending accounted for more than a third of Japan's 2.7 percent expansion in 2004.
Possible risks for growth include ``volatile oil prices and the possibility that a sharp appreciation of the yen could further undercut exports,' the fund said.
Japan's almost seven-year bout of falling prices is easing, yet could worsen by a sudden appreciation in the yen or ``prolonged economic slowdown,' the fund said. The Bank of Japan ``should maintain a very accommodative monetary policy until deflation is decisively beaten,' the fund said.
The central bank has pumped extra cash into the economy and held borrowing costs almost at zero since March 2001 to end deflation. Governor Toshihiko Fukui has promised to maintain the policy until nationwide core consumer prices, which exclude fresh food, stop falling for at least a few months and policy makers are sure they won't resume declining.
Core prices have risen once since April 1998.
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