RIETI Report January 2012

Projecting the Japanese Economy in 2012

After a tumultuous year in 2011, what can we expect for the Japanese economy this year?

If everything goes smoothly, RIETI Faculty Fellow Mitsuhiro Fukao sees the Japanese economy in 2012 achieving a reasonable growth rate of about 2% in large part due to a massive reconstruction budget proposed by the Noda administration. A significant portion of the reconstruction outlays, backed by increased public expenditure and financing, is expected to be spent in the first half of 2012, leading to relatively stable growth during this period, although a slowdown to some extent may occur in the second half. If this holds true, business sentiment in Japan should gradually improve.

However, Mitsuhiro Fukao also sees the possibility of a strong downward pressure exerted on the economy with the same impact as that of the Lehman Brothers collapse-triggered global financial crisis, with Europe as the epicenter. If this occurs, the Japanese economy can expect negative growth, along with increased unemployment and worsening deflation.

In the January issue of the RIETI Report, Mitsuhiro Fukao analyzes the cause of this risk scenario. Furthermore, he discusses in detail the international competitiveness of the eurozone countries, the lingering crisis in the PIIGS countries (Portugal, Italy, Ireland, Greece, and Spain), and the possibility of a serious recession in the eurozone.

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.

To read the full text
http://www.rieti.go.jp/en/columns/s12_0005.html?id=nl

Event Information

For a complete list of past and upcoming event information.

Symposiums

Workshops

BBL Seminars

Fellow titles and links in the text are as of the date of publication.

For questions or comments regarding RIETI Report, please contact .

RIETI Report is published monthly.