Japan lifts growth forecast and outlines debt measures

| June 22, 2010 | 0 Comments

The world’s second largest economy has today lifted its growth forecast for the year to March to 2.6%, compared with an previous estimate of 1.4%.

Growth in the year to March 2012 is predicted to be 2%.

Japan was one of the first major economies to emerge from recession in the second quarter of 2009 – boosted by the country’s dependence on exports. However, the economy continues to battle with deflation.

Another risk is the country’s debt – which at nearly 230% of GDP is the highest of any industrialised nation.

The debt is the result of decades of stimulus spending and low tax receipts.

Japan’s new Prime Minister, Naoto Kan, has warned of tough measures in order to reduce the debt mountain – or risk a Greece-style debt crisis.

However, the Government has not provided specific details as to how it will achieve this.

The Cabinet Office said today: “We must prevent a situation like Greece, where Japan loses the confidence of the bond markets, pushing interest rates higher and leading its finances into a state of collapse.”

However, it warned that deflation was still a problem - with prices not expected to stop falling until at least 2011.

Japan’s core consumer price index, which excludes volatile fresh food prices, fell 1.5% in April from a year ago – representing the 14th straight month of decline and larger than a 1.2% fall in March.

Deflation (where prices fall rather than increase) can be a serious threat to an economy because it deters consumers and businesses from spending in expectation of falling prices.

Japan has battled with deflation in the past and was a problem for the economy during its so-called “Lost Decade” in the 1990s in which the economy struggled with falling prices.

Tags: Cabinet Office, , , , Naoto Kan

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