This month's featured article
Projecting the Japanese Economy in 2012
FUKAO MitsuhiroFaculty Fellow
Recovery with a large inherent risk
Absent any external shock, the Japanese economy in 2012 should be able to expect a reasonable growth of about 2%, owing to the relatively large reconstruction budget that the Noda administration has put forward. A major part of the reconstruction outlays, backed by increased public expenditure and financing, is expected to be spent in the first half of 2012. Therefore, the first half of the year should see relatively stable growth, which may slow down to some extent in the second half. If this scenario holds up, the business sentiment in Japan should show gradual improvement. On the other hand, caution is required, because there is a 20%-30% chance that a downward pressure equaling the impact of the global financial crisis, triggered by the collapse of Lehman Brothers, will be exerted on the economy, with Europe as its epicenter. In that case, due to a significant worsening of the environment surrounding exports, the Japanese economy is expected to experience a negative growth of about 2% from the previous year, together with increased unemployment and worsening deflation. In the rest of this column, the cause of the risk scenario is analyzed.
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