MNI POLICY: IMF Ups Japan 2020 GDP View To -5.3% From -5.8%

The International Monetary Fund on Tuesday raised its forecast for Japan's gross domestic product growth in 2020 but lowered that for next year, in line with the better-than-feared outlook for the global economy.

The country's GDP is expected to shrink 5.3% in 2020, better than the 5.8% contraction forecast in June, the IMF's World Economic Outlook report showed. However, in 2021, Japan's economy is expected to grow 2.3%, lower than the earlier forecast of 2.4%.

The IMF also upgraded its view on the global economy in 2020. It expects GDP to shrink 4.4%, better than its June forecast of 4.9%. Next year, the global economy is forecast to grow 5.2%, slightly below the 5.4% projected in June.

"The baseline projection assumes that social distancing will continue into 2021 but will subsequently fade over time as vaccine coverage expands and therapies improve," the report said. But "the uncertainty surrounding the baseline projection is unusually large," it warned.

"After the rebound in 2021, global growth is expected to gradually slow to about 3.5% into the medium term," the WEO added.

Inflation in advanced economies remains below pre-pandemic levels and central bank actions have provided credit to a wide range of borrowers. Still, the impact of the Covid-19 recession on small and medium enterprises (SMEs) is "likely to be even more severe than in previous crises because SMEs are most prevalent among the hardest-hit sectors, such as restaurants, hotels, and arts and entertainment," the report said.

"Consequently, liquidity and solvency risks are bound to increase, putting both SME jobs and debt at risk," it added.