Japan likely to achieve 2% real GDP growth in 2012

Singapore: Japan should achieve moderate real GDP growth of 2% in 2012, following a 0.9% contraction in 2011, when the Great East Japan Earthquake, tsunami, and nuclear crisis damaged the nation’s economy, Standard & Poor’s Ratings Services said in a report published today.

“Together with slower global economic growth and a rise in the yen, the calamities--along with floods in Thailand that disrupted supply chains in the fourth quarter of 2011--depressed exports of both goods and services, leading to Japan’s first trade deficit in 31 years.

“We expect both public and private sector investments to grow in 2012. However, several risks still threaten Japan’s economic recovery, including weaker global demand, potential constraints on power supply in the summer, and future movements in the value of the yen against other major currencies. Factors such as the high price of oil and greater dependence on liquefied natural gas could also continue in 2012.

“Overall, we expect exports to rebound in 2012. However, we also anticipate imports will be high, offsetting higher exports to some extent. Although we think Japan is unlikely to incur an annual current account deficit in coming years, shrinking nominal GDP makes it harder to pull the nation out of deflation or cut budget deficits.

“Therefore, despite government efforts to raise the national consumption tax, we expect the annual budget deficit to remain close to 11% in fiscal 2012 and for net general government debt to GDP to rise to 135% from 123%. An increase in the Bank of Japan’s asset purchase program might weaken the yen and buoy the domestic bond market but is unlikely to spur inflation, in our view.”