WASHINGTON – The International Monetary Fund on Tuesday set out a vision of Japan being the world’s only advanced economy that is shrinking in 2017 due to the impact of a planned consumption tax hike.
The fund also cut its global growth projection for the current year, citing increased uncertainty.
The nation’s economy is expected to contract a real 0.1 percent in terms of gross domestic product in 2017, down 0.4 percentage point from an earlier estimate released in January, the Washington-based lender said in the semiannual World Economic Outlook report.
Prime Minister Shinzo Abe faces calls to postpone raising the consumption tax rate to 10 percent from the current 8 percent next April out of concern for the planned hike’s impact on the already reeling economy.
The IMF said it expects Japan’s economy to expand this year, but the margin was slashed by 0.5 point to 0.5 percent compared with the January projection, according to the report.
“The projected decline in growth in Japan due to the planned consumption tax increase is more than offset by slightly stronger performance in most other advanced economies,” the report said. It forecast growth of 1.9 percent and 2 percent in 2016 and 2017, respectively, for the rich nations.
Meanwhile, the global economy is likely to expand 3.2 percent in 2016, down 0.2 point from an earlier forecast, and grow 3.5 percent in 2017, down 0.1 point, the IMF said, ahead of the start of biannual events involving it, the World Bank and the Group of 20 economies.
“Uncertainty has increased and risks of weaker growth scenarios are becoming more tangible,” the report said.
The U.S. economy is expected to grow 2.4 percent this year, down 0.2 point, and 2.5 percent next year, down 0.1 point, according to the report.
The IMF backed the Bank of Japan’s monetary easing measures, saying they are “expected to support private demand.”
“Japan’s medium- to long-term growth prospects remain weak, primarily reflecting a declining labor force,” it also said.
Emerging and developing economies will expand by 4.1 percent in 2016 and grow 4.6 percent in 2017, it said.