The government announced last week a fiscal stimulus, amounting to JPY13.2tn (2.4% of GDP). Out of this headline number, JPY9.4tn (1.7% of GDP) will take the form of actual government spending. The stimulus was described as a “15-month budget”, and the government said it will boost growth by +1.4pp over time. While we expect the stimulus to support growth (we are revising our 2020 forecast upwards), the government’s estimate may be assuming an excessively high fiscal multiplier. We also think that GDP growth may still disappoint in Q4. The negative impact of the sales tax hike will be reflected, the stimulus will not have kicked in yet, and the upwards revision in Q3 GDP provides an unfavorable base. Indeed, Q3 GDP growth was revised up on Monday to +0.4% q/q from +0.1%, likely reflecting frontloading of spending ahead of the tax hike (implemented on 1 October). Overall, we expect GDP growth at +1.1% in 2019 and +0.8% in 2020.
Authors
Françoise Huang
