News Column

IMF Cuts Japan Growth Estimate, Cites U.S. Debt Woes

October 8, 2013

Japan Economic Newswire

WASHINGTON, Oct. 8 -- (Kyodo) -- The International Monetary Fund on Tuesday slashed its global economic growth projections for the year, saying the Japanese economy will slow down due to factors such as the planned sales tax hike next April.

In its World Economic Outlook, the IMF also urged the United States to deal with the partial government shutdown and a potential selective default, describing them as "new downside risks" for the global economy.

The IMF projected the global economy will grow 2.9 percent this year in terms of inflation-adjusted gross domestic product, down 0.3 percentage point from the earlier estimate released in July.

The pace of growth for the world economy for 2014 was also revised downward by 0.2 point to 3.6 percent.

As downside risks, the IMF mentioned an unexpected increase in U.S. bond yields following the Federal Reserve's planned tapering of its quantitative easing measures and a prospect that the Chinese economy will grow more slowly than expected.

The IMF trimmed its estimate of Japan's economic growth for 2013 by 0.1 point to 2.0 percent, while raising the figure for next year by 0.1 point to 1.2 percent.

"Japan's economy is enjoying a vigorous rebound but will lose steam in 2014 as fiscal policy tightens," the Washington-based organization said.

The report was referring to Japan's plan to raise the sales tax rate next year to 8 percent from the current 5 percent as a step to improve the health of its debt-ridden finances.

"Insufficient fiscal consolidation and structural reforms in Japan could trigger serious downside risks," it said.

The report projected the U.S. economy will expand 1.6 percent in 2013, down 0.1 point from its July projection, and 2.6 percent in 2014, down 0.2 point.

The IMF said the partial shutdown of the U.S. government "could be quite harmful" if it drags on. The U.S. government has partially suspended its operations since the Oct. 1 beginning of fiscal 2014 as the divided Congress failed to pass a budget.

The United States was also urged to avoid defaulting on its debt by raising a debt ceiling. "A failure to promptly raise the debt ceiling, leading to a U.S. selective default, could seriously damage the global economy," the IMF said.

The U.S. lawmakers have also failed to agree to raise the maximum limit of the amount of money the government can borrow, which means the country could be short next week of money to make payments such as the interest on national bonds.

The Chinese economy will expand 7.6 percent this year, down 0.2 point from the IMF's July projection, and 7.3 percent next year, down 0.4 point, the IMF said.

The eurozone will contract 0.4 percent in 2013, up 0.1 point from the earlier projection, but expand an unchanged 1.0 percent in 2014 staging a turnaround.

(c) 2013 Kyodo News International, Inc.

Source: (c) 2013 Kyodo News International, Inc.

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