Output growth has slowed from the rapid rates of recent years. House-building has declined especially sharply. But with this and other adjustments being localised and temporary, healthy growth in GDP should soon resume. Core inflation has risen, partly reflecting the flow-on of higher energy prices to other goods and services. But assuming energy prices level out, this effect will fade and inflationary pressures should subside.
The current economic recovery, the longest in Japan’s post-war history, has matured into a self-sustained expansion driven by private domestic demand. The expansion is projected to continue, with growth of about 2% in 2007-08, thanks to buoyant business investment underpinned by record corporate profits and private consumption. Inflation is expected to increase only gradually.
After several false starts, the economic recovery has taken hold. Activity in the first half of 2006 grew at the fastest pace for some years. Exports and investment have been the main drivers but there are signs that households have started to boost spending as well. Consumption should underpin the recovery going forward, with business and residential investment playing less of a role than they have done recently. Overall, GDP is projected to grow in the 2 to 2½ per cent range through 2007 and 2008.
The economy has entered a sustainable recovery and is projected to grow above potential throughout the projection period, although growth is expected to fall temporarily below 2% in 2007 in the wake of the value-added tax rate increase. The growth impetus is likely to shift from exports and investment to consumption in 2008, as unemployment recedes and real incomes rise. The government deficit is projected to fall to 2¼ per cent of GDP this year and below 1½ per cent in 2007 and 2008.
Economic activity picked up in the second quarter but stalled in the third. It is likely to recover and continue growing slightly faster than potential over the forecast period; the output gap should gradually shrink. Sustained by firmer activity, employment growth should gain strength, and the fall in unemployment should continue, albeit at a slower pace than in 2006. Wage growth is likely to accelerate slightly and inflation to increase, while remaining moderate.
A recovery in 2006 signals an end to 4½ years of near stagnation. The main driving forces have been strong export market growth, easy credit conditions, reform-led employment growth and improving confidence. Growth is likely to slow in 2007 partly due to policy tightening, but rebound by 2008.
GDP growth is expected to continue at its recent pace of 2½ to 2¾ per cent, supported by buoyant domestic demand. Exceptionally strong labour force growth -- driven by high immigration and rising participation -- is outstripping employment growth, pushing the unemployment rate up. The resulting labour market slack should help to ensure that the anticipated fourth quarter spike in headline inflation does not push up inflationary pressures, and that headline inflation moves back to the 2% target in 2007.
Following tighter monetary conditions, terms-of-trade losses and weaker exports, activity has recently eased and the economy is estimated to be operating close to its potential level. Looking forward, it is expected to benefit from some pick-up in external markets while domestic demand decelerates modestly following its recent robust expansion. Inflation pressures are likely to remain limited, as energy prices have fallen from recent peaks and wages may rise only moderately.
A pick-up in export volumes is likely to bring output growth gradually back up above the trend rate of over 3% by 2008, despite a decline in the terms of trade and a cooling of the business investment boom. Growth will, however, be held back in 2007 by the effect of a drought on the agricultural sector.
Driven by strong investment and exports, GDP growth is expected to pick up to above 3% in 2006 before slowing to 2½ per cent in 2007. With the economy still operating somewhat below potential, inflationary pressures are likely to be contained, particularly in light of continued wage restraint.
After healthy growth in 2006, economic momentum is expected to slow somewhat during the next two years. Domestic demand is being sustained by higher real incomes and employment increases, but continued export market losses show that the economy is not fully benefiting from the international recovery. Despite the slowdown, economic growth will remain higher than the potential rate (just below 2%) closing the output gap by end-2008. There are already signs that slack is disappearing in some parts of the economy; nevertheless, core inflation is projected to remain subdued while headline inflation falls forwards towards the core rate on the back of lower oil prices.
Growth peaked at the end of 2005 and is expected to level out over the projection period with annual GDP growth averaging 5¼ per cent over 2006-08. While export and investment growth are expected to remain strong and household consumption growth to increase, these will be accompanied by stronger import growth. Headline inflation will be pushed up, largely due to increases in excise duty and price deregulation.
GDP has expanded strongly during 2006 and is now well above potential. With a continuing housing boom and strong external demand, labour shortages have become very clear. Domestic firms are losing market share, and wages have started to accelerate, in particular in the construction sector.
Economic activity grew rapidly in the first half of 2006. Strong growth this year is partly explained by the rebound from last year’s labour dispute in the forestry industry. But underlying growth is also robust, with output expected to expand at close to its trend rate of 3% over the next two years. Unemployment is projected to fall to around 7% by the end of the projection period, which would be the lowest rate since the early 1990s.
The economy grew briskly in 2006 on the back of a strong rebound in investment activity and robust consumption spending. Output growth is expected to continue to grow at around 3¾ per cent over the next two years and unemployment is set to fall further. Headline inflation should decline, as the contribution from oil prices wanes, but remain well above the euro area average. The current account deficit is expected to remain high.
For 2006, real GDP is set to grow at a rate near its trend (about 4%). However, weakening domestic demand, due to tight austerity measures, is projected to slow growth in both 2007 and 2008, despite exports continuing to expand strongly.
There are increasing signs that a change in foreign investor sentiment early this year and further policy tightening has set in motion an overdue adjustment process. The economy is projected to contract in the next few quarters. Nonetheless, economic imbalances will remain substantial for some time. Thus, the challenge for policymakers will be to ensure that steady progress is made in unwinding them lest renewed financial market nervousness complicates an orderly adjustment.
The economy is growing rapidly propelled by strong household spending. Activity is projected to keep expanding robustly with a mild slowdown in growth from 5% in 2007 to 4½ per cent in 2008 as the boost that temporary factors are giving to demand fades. Inflation is projected to remain above the euro area average.
Output growth is expected to ease from 5% in 2006 to around 4½ per cent in 2007-08 as a result of less buoyant domestic demand. The significant appreciation of the won is bringing the current account from surplus into balance, while helping to keep inflation in the central bank’s medium-term target zone.
Growth has remained strong for the third year running, reaching a pace of more than 5% in 2006 on the back of strong activity in the financial and business services sector. Exports of financial services have continued to prosper, reflecting the positive sentiment in financial markets. Employment growth has accelerated and become more broad-based. Nevertheless, unemployment continues to rise as most jobs are being filled by cross-border workers, while domestic hires barely keep pace with expanding supply.
Output growth is likely to moderate, reflecting weaker public spending and faltering external demand. But private investment and consumption should remain strong, and GDP growth is projected to reach 3½ to 4% in 2007 and 2008. After turning up in the third quarter of 2006, inflation should come down. With the terms of trade deteriorating, the current account deficit should widen gradually.
The economy continues to recover, with GDP growth rising to 3% in 2006. Exports are benefiting from strong world demand and improving competitiveness. Domestic demand is finally picking up as private consumption is underpinned by a stronger labour market. Inflation is low, but core inflation is expected to gradually pick up along with higher wage growth.
The economy has slowed over the course of the year, serving to eliminate excess demand pressures. The projected pick-up in the pace of activity is likely to be modest, as the shift towards export-led growth is hampered by the exchange rate appreciation since the middle of the year. Nevertheless, moderate real disposable income growth will allow private consumption to gently accelerate. Employment is projected to stabilise, but the rise in the unemployment rate will be attenuated by some labour market withdrawal.
Mainland Norway is booming. Real GDP growth is projected to have reached 3¾ per cent in 2006, and to moderate slightly in 2007 and 2008 reflecting the completion of major oil investment projects, reduced monetary stimulus and slowing household demand. Although the output gap has become increasingly positive, underlying inflation has remained relatively low and below the Norges Bank target.
Economic performance has been improving steadily, with growth of 5% combined with low inflation and plunging unemployment. Continuing strength in investment and exports should support robust growth in 2007 and 2008. Job creation is projected to maintain its recent momentum and to make significant further inroads in unemployment. Productivity gains are projected to be moderate, and, with rather faster wage increases, costs may push inflation towards the official target of 2½ per cent.
Stronger growth in Europe spurred a pickup in exports and GDP growth in 2006. The recovery is expected to gain momentum in 2007 and 2008. The significant output gap and high unemployment should lead to a moderation in wage claims and reduce inflation to the euro area average.
Net exports are projected to rise markedly as production builds up at new automobile plants, pushing economic growth up to around 8% in 2006 and again in 2007. Unemployment is likely to continue to fall, albeit more slowly than in recent years. Headline inflation should decline to 2¼ per cent by 2008.
Output growth, which reached 3.7% in 2006, should moderate somewhat in 2007 and 2008 as monetary conditions tighten and exports are expected to weaken. It will, however, remain robust, pushing the unemployment rate to below 8%. With inflation stabilising at around 3%, the differential with the euro area is unlikely to shrink significantly, implying a further erosion of international competitiveness.
The Swedish economy is growing dynamically, driven in particular by domestic demand. With growth projected to be 4.3% this year and 3.6% next, the output gap will be pushed further into positive territory. Although labour shortages are visible in construction, wage growth is not yet picking up. Underlying inflation remains at very low levels but is expected to rise over the projection period.
Economic growth, which should reach about 3% in 2006, is likely to slow in 2007 and 2008 in a context of tighter monetary policy and a slightly less buoyant international environment. GDP will continue to rise more rapidly than potential output however, which should entail a further reduction in unemployment. Inflationary pressures, however, seem likely to remain low.
The economy was hit hard by the May-June 2006 turmoil in international markets which served to underscore its remaining vulnerabilities, but has recovered rather rapidly. The current account deficit, which will likely reach a historically high level above 8% of GDP in 2006, continues to be financed by growing private debt and foreign direct investment. Strong GDP growth is expected to continue but risks remain.
Activity is showing signs of recovery, following a slowing in the second quarter. Private consumption continues to be strong, and investment is likely to bounce back. The trade and current account surpluses remain robust on the back of sustained good export performance. Financial conditions have been benign, even during the pre-election period, buttressed by a continued improvement in external vulnerability indicators.
After growing very rapidly in the first half of the year, GDP slowed somewhat in the second half as fiscal and monetary policy exerted a dampening impact on activity. Nevertheless, growth in 2006 may still be around 10½ per cent. The moderate slowing is projected to continue in the first half of 2007 as export growth slackens and the impact of policy tightening is felt, but thereafter growth may pick up again, resulting in the economy growing in line with potential of somewhat more than 10% by 2008. Despite imports accelerating and exports slackening, the current account surplus is projected to rise continuously, reaching $285 billion (8.8% of GDP) by 2008. As supply increases in line with demand, inflation will remain subdued at 2% during the projection period.
The economy grew very rapidly at the beginning of fiscal year 2006,5 expanding by close to 9%, after rapid growth during the previous year. Some signs of overheating have emerged: inflation has picked up to over 6%, though food prices are in part responsible for this movement, and the current account moved into a deficit of 1.3% of GDP in fiscal year 2005 and is likely to widen somewhat in fiscal year 2006. Agricultural output may weaken slightly bringing growth down to 8% in fiscal year 2006. In 2007 and 2008, the effects of the current tightening in monetary growth should be felt, slowing growth to 7% by the end of the projection period and ensuring that inflation moderates slightly, to around 5%.
Real GDP growth will remain fairly robust, though moderating gradually over the projection period as the impulse from recent terms-of-trade gains diminishes. Growth will continue to be driven mainly by consumption, but investment growth is also expected to be relatively strong. Inflation is likely to decline despite continued rapid money-supply growth, as rising confidence in the rouble contributes to the rapid growth of money demand. However, inflationary pressures are likely to abate only gradually, given the government’s plans for further spending increases in 2007.
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