IMF expects Japan's GDP growth to reach 2% in 2012

The International Monetary Fund (IMF) expects Japan's GDP growth to reach about 2% in 2012 and slow slightly to 1-3/4% in 2013 with headline inflation remaining near zero percent. The IMF presented its analysis after its team led by Deputy Director for the Asia and Pacific Department Jerald Schiff completed the 2012 Article IV Consultation Discussions with Japan today. The team was in Tokyo from May 30 to June 12. The team met with senior officials from the government, the Bank of Japan (BoJ), and private sector representatives, to discuss recent economic developments and the policy challenges ahead. Japan's recovery will be sustained by reconstruction spending and stronger private consumption. A weak external environment, particularly in Europe, is likely to dampen demand for exports and weigh on business sentiment. Cautioning on the exchange rate which has appreciated over the past year partly because of safe-haven capital inflows, the IMF said its analysis suggests that the yen is moderately overvalued from a medium-term perspective. On this basis, the Fund expects real GDP growth to reach about 2% this year and slow slightly to 1-3/4 in 2013. To address longstanding challenges of high public debt, low growth, and deflation, the IMF report said, "Japan needs to move forcefully on many fronts to take advantage of synergies among policies. "The immediate priority is to tackle Japan's deep rooted fiscal problems. Net public debt (125% of GDP) has increased ten-fold over the last two decades against the backdrop of a rapid rise in social security spending. "Passage of the current tax and social security reforms is, thus, crucial to demonstrate a commitment to fiscal reform and sustain investor confidence. Reducing debt to sustainable levels, however, will require additional measures to achieve an overall fiscal consolidation of 10 percent of GDP over the next decade. Careful design of these measures would help limit their impact on growth," the IMF said. (QNA)