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June 8, 2011    

IMF downgrades Japanese economic growth

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by Kay Murchie

The International Monetary Fund (IMF) has downgraded its growth prospects for the world’s third largest economy.

The Fund expects the Japanese economy to contract by 0.7% in 2011, much lower than its previous estimate of 1.4%.

The IMF said it lowered its growth forecasts because of March’s earthquake and tsunami. The twin disasters caused billions of pounds worth of damage and have impacted on growth.

However, the organisation believes projects to reconstruct the damage will boost the economy and growth of 2.9% is expected in 2012 – up from a previous forecast of 2.1%.

It also suggests Tokyo hike taxes, in order to cut its huge debt – which is currently almost twice the country’s annual economic output and is the highest of any industrialised nation.

Debt has been building up as the Government attempted to counter years of economic stagnation, while the nuclear power crisis has put further pressure on spending.

The IMF said tougher measures should be introduced to reduce debt but said there is little manoeuvre for cutting back on spending so “comprehensive tax reforms” are required.

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