Japanese economy likely to grow 1 pct in 2017 and 2018, growth to be externally driven DBS Bank

The Japanese economic growth for the first quarter of this year came in above expectations. According to a DBS Bank research report, the Japanese economy is projected to expand 1.3 percent for the whole of this year.

For the next year, the economy is expected to expand at the same pace of 1 percent. Meanwhile, inflation is likely to come in at 0.5 percent and 0.6 percent in 2017 and 2018, respectively.

The Japanese economic growth is expected to continue to be externally-driven in the remainder of the year. Exports are likely to remain on the recovery trajectory, owing to the rebound in global economy, waning of protectionism risks and upswing in the electronics sector. Investment and consumption are also likely to rise modestly, with the help of a gradual expansion in capex utilization rate and tightening of the labor market conditions, noted DBS Bank.

However, the economy’s output gap has turned just slightly positive due to the recent recovery. This small output gap is expected to result in just a mild rise in the consumer price inflation to around 0.6 percent year-on-year in the coming six months.

In the meantime, GDP deflator is indicating signs of renewed weakness. In the first quarter of this year, nominal GDP shrank 0.1 percent sequentially. This was in stark contrast with the growth in real GDP. With the ongoing worsening in the terms of trade and lingering softness in consumer prices, the GDP deflator is expected to remain in the negative territory through this year.

“All in, sluggish price indicators will likely continue to challenge the BOJ and dissuade it from exiting QE soon”, added DBS Bank.

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