Japan almost doubled its economic growth forecast for the current fiscal year today, saying that strong business investment and a rebound in consumer spending could lift growth to its fastest pace in eight years.
The Cabinet Office said in its latest forecast that real gross domestic product (GDP) growth, which takes into account price changes, could be 3.5 per cent in the year ending March 2005, up from its earlier forecast of 1.8 per cent.
That would be the fastest pace since fiscal 1996/97. It also revised its forecast for nominal GDP growth to 1.8 per cent from 0.5 per cent, putting its forecasts in line with those of most private economists.
Brisk exports to China and a pick-up in capital spending and personal consumption have helped pull Japan's economy out of its decade-long slump in recent months. The economy grew at an annualised pace of 6.1 per cent in the January-March quarter, its best showing in more than a decade.
"Private demand has been very strong. We expect it to keep the economy bolstered even as the surge in exports wane," said Mr Naoki Murakami, senior economist at Goldman Sachs in Tokyo, who forecasts 3.7 per cent GDP growth in the current fiscal year.
The Cabinet Office said it now forecast consumption in the private sector to rise 2.6 per cent in the current year rather than 1.1 per cent as previously seen.
It forecast corporate investment to rise 9.9 per cent rather than a previous 7.2 per cent.
That shows, one top government official said, that the export-led recovery was filtering through to the rest of the economy.
"The broadening of the economic recovery is becoming clearer. Smaller firms were lagging big firms quite a bit, but now (the recovery) is spreading to them," Mr Hideji Sugiyama, vice minister for economy, trade and industry, said.
For the following fiscal year starting next April, the Cabinet Office said it expected growth of "above 2 per cent" in real terms, or around 1.5 per cent in nominal terms.
Mr Donald Johnston, Secretary General of the Organisation for Economic Cooperation and Development (OECD), noted the strength of Japan's economy during a visit to Tokyo.
"It's going in the right direction so I do think (the revised forecast) is simply further evidence of confidence in the strength of the recovery," he told a news conference.