Japan's economic growth is likely to become more steady and sustainable in the next two years, helped by strong exports and business investment, though personal consumption needs watching, a report said on Tuesday. Nomura Research Institute forecast the economy would grow a real 2.7 percent in the fiscal year beginning April 2004 and 1.8 percent in the following fiscal year, after 2.8 percent growth in fiscal 2003. "Against a backdrop of slower overseas economies, the pace of Japan's growth will fall slightly, but instead the sustainability and stability of the recovery will strengthen," the report said. Japan's economy grew at an annualised seven percent in the last three months of 2003, its fastest rate in 13 years and far outpacing expectations thanks to strong demand overseas for Japanese electronics, cars and machinery.
While most economists see such a pace as unsustainable, they say Japan is firmly on track to break free from a decade of sluggish growth and reach its full economic potential. However, that would depend on a full pickup in personal consumption, which while improving, has been held back by difficult employment conditions and falling wages. "Whether personal consumption can take on its role of driving the economy will be the biggest focus for now," the report said, noting that if it can, then even deflation won't prevent the recovery from becoming sustainable. Nomura said that a slowdown in overseas economies would be unavoidable in the next two years, but it would unlikely be a sudden, large slowdown and that by 2005 stability would return. In a separate report on Tuesday ING Securities raised its growth forecast for fiscal 2004 to 3.1 percent from a previous 2.4 percent, citing a rise in exports and business investment. A slowdown from the seven percent at the end of 2003 is certain, Chief Economist Richard Jerram wrote in the report. "However, with a moderately positive contribution from the external sector, growth should remain comfortably above trend."//