Japan’s real GDP likely to be flat in H2 2016; expected to grow slightly next year

This year, real demand in Japan stalled. Industrial production in the country, through May, averaged 2.6 percent below the same period in 2015. Meanwhile, household consumption was 0.3 percent below, whereas export volume was 0.6 percent below. Although the labor market appears tight because of demographics, it has seen a deceleration in the decline of jobless rate, noted Morgan Stanley in a research note.

There was a slowdown in price improvements too: US-style core CPI peaked in November 2015 at 0.9 percent, while it fell to 0.6 percent in May. The outlook for Japanese economy is fairly encouraging. Japan’s real GDP is likely to be flat in the second half of 2016; however, it is expected to register certain growth in next year.

In 2016, private consumption and investment are expected to slightly grow positively. Next year, consumption, based on lower savings rates might grow; however, exports and investments are not likely to grow, according to Morgan Stanley.

Public works are likely to rebound slightly because of fiscal spending. Meanwhile, price rises are expected to be slightly higher next year despite subdued real demand as tightness in labor market pushes up prices, while oil prices and FX stop pushing prices down.

“We expect the shrinking labour force to maintain upward pressure on hourly wages (now rising by about 1.8 percent Y). Even so, sharply higher wages are needed to push price inflation towards 2 percent Y,” stated Morgan Stanley.