Japan's Economy: Monthly Outlook (Feb 2018)
GDP growth of +1.7% in FY17, +1.3% in FY18, and +0.8% in FY19; five risks facing the global economy
February 26, 2018
Summary
◆In light of the 1st preliminary Oct-Dec 2017 GDP release we have revised our economic growth outlook. We now forecast real GDP growth of +1.7% in comparison with the previous year for FY17 (+1.8% in the previous forecast), +1.3% in comparison with the previous year for FY18 (+1.1% in the previous forecast), and +0.8% in comparison with the previous year for FY19 (+0.6% in the previous forecast). Japan’s economy has continued accelerated growth due to the following factors: (1) favorable overseas demand, (2) inventory investment, and (3) replacement demand for durables. However, the effects of these three factors will gradually fade away in the future, while the consumption tax increase planned for October 2019 is expected to have a negative impact on income. Hence we expect Japan’s economy to continue to slow down through FY2019.
◆In this report we examine five risks facing the global economy, which could affect our outlook for the Japanese economy as outlined in the above. These are (1) Risk of global stock price lows and global production decline triggered by the US stock market: while there is still a chance that US stock prices may be on the high side, we do not think that the situation will go so far as to cause global production declines. (2) US & EU exit strategies are expected to bring downward pressure on the global economy, with -0.07% seen in 2018 and -0.26% expected in 2019. (3) Yen appreciation: we urge caution regarding the possibility that the US may adopt a weak dollar policy. Yen appreciation of 10 yen will bring downward pressure of around -1.9 tril yen on current profits of Japanese corporations. (4) Increase in price of oil: crude oil was at 57.9 dlrs/bbl as of December 2017. If the price increases by 10 dlrs/bbl, it will bring negative pressure of around -0.12% on real GDP between the years 2018 and 2020. And finally, (5) China’s excessive debt continues to be a concern. This factor makes China especially susceptible to the negative effects of higher interest rates.
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