IMF cuts Japan’s 2019 growth forecast to 0.8 percent

November 26, 2019

Washington--The International Monetary Fund on Monday downgraded its real-term growth forecast for the Japanese economy for 2019 to 0.8 pct from 0.9 pct as of October, reflecting the fallout from the U.S.-China trade war.

In a statement to conclude its annual economic review on Japan, the Washington-based institution said that there was no major last-minute demand before the Oct. 1 consumption tax hike from 8 pct to 10 pct in the country while warning that "downside risks have increased," in an apparent reference to the U.S.-China trade friction and slowing world economic growth.

In order to prevent the economy from losing momentum, Japan should consider continuing stimulus measures in 2020 and if needed in 2021, the IMF said, showing concern that its fiscal stance may be tighter after the end of measures designed to mitigate negative impacts from the tax hike.

At the same time, the IMF reiterated the importance of Japan continuing efforts to improve its fiscal health. Pointing to the country's increasing fiscal burdens, such as ballooning social security costs reflecting its aging society, the IMF said, "The consumption tax rate would need to increase gradually to 15 pct by 2030 and to 20 pct by 2050."

At a press conference in Tokyo on Monday, IMF Managing Director Kristalina Georgieva said that raising the consumption tax further in Japan would be effective in improving the country's fiscal health.

She said that raising the tax to more than 10 pct would be fair and relatively easy to implement, adding that Japan will be able to rely a little more on consumption tax revenues by hiking the tax over time.

The Bank of Japan's accommodative monetary policy stance "should be maintained" to help shore up economic activities and prices in the nation, the IMF statement said. The central bank aims to raise year-on-year consumer inflation to 2 pct.

Noting that prolonged low domestic interest rates have pushed Japanese banks, insurers and pension funds "to adopt riskier asset allocations," the statement warned that this could threaten financial stability.

At the conference, Georgieva expressed her view that the BOJ's target can be achieved by increasing wages.

Georgieva, visiting Japan for the first time since she took office as IMF head last month, held talks with Japanese Prime Minister Shinzo Abe also on Monday.

Abe said he hopes to revitalize the economy, strengthen fiscal health and implement structural reform, including measures to promote female participation in society and improve work styles.

Pointing to the significance of structural reform following demographic changes, Georgieva said that if progress is made in this, Japan's real gross domestic product could increase by 15 pct over 40 years. Jiji Press