While 2014 may prove to be a little less exciting than 2013, global asset management firm AllianceBernstein expects a continuation of reasonable economic growth.
Released yesterday, the AllianceBernstein Global Economic Outlook report predicts the Japanese economy will grow 2.5 per cent in 2014, characterised as a consolidation of last year’s gains.
However, just as last year surprised the Abenomics sceptics of late 2012, some surprises could be in store for 2014.
AllianceBernstein estimates that fourth quarter on fourth quarter growth will reach 1.7 per cent in 2014, versus 3.6 per cent in 2013.
“In part, this reflects the spending pattern associated with the consumption tax hike (VAT) in April 2013, which dragged forward consumption and housing expenditures into late 2013 and early 2014 and left a hole in the middle of the year,” AllianceBernstein Asia Pacific senior economist Guy Bruten said. “It also reflects some fade in the fiscal pulse.
“The level of public sector investment spending in the fourth quarter of 2013 was just over 20 per cent higher than the period year,” he said.
“While the Abe administration is still increasing infrastructure spending, in our view the pace of growth will clearly slow.”
The potential risks to further growth are threefold and rest heavily on the focus of the Abe administration’s economic strategy, as well as the self-sustaining growth that its policies attempt to stimulate.
“Growth could disappoint because of a lack of follow-through from policy stimulus to self-sustaining growth,” Mr Bruten said, adding that wage growth, capital spending and export volumes will be key indicators.
“Second, the ‘third arrow’ policies – structural reforms – are still to be implemented and their success is in question,” he said.
“Third, Prime Minister Abe’s focus may continue to swing towards national security and geopolitics, taking valuable political capital away from the economic reform agenda.”
Taking these risks into account, Alliance Bernstein is still relatively optimistic, Mr Bruten said, and expects to see an improvement in export volumes helped by both the yen’s impact on competitiveness and the stronger global economic environment.
Global real GDP growth is projected to be 3.2 per cent in 2014, nearly one percentage point higher than 2013, largely due to an acceleration of growth in developed economies, according to the report.
“We’re less worried about the drag on household spending from the consumption tax, in part because of rising wages, and more upbeat about the prospects of an improvement in business capex,” Mr Bruten said.
In an update released yesterday, the International Monetary Fund’s World Economic Outlook adjusted its October 2013 projections for Japan, with growth now expected to slow more gradually.
Temporary fiscal stimulus should partly offset the drag from the consumption tax increase in early 2014, the report said.
“As a result, annual growth is expected to remain broadly unchanged at 1.7 per cent in 2014, given carry-over effects, before moderating to one per cent in 2015.”
