Changes in Consensus Growth Forecasts for Japan and Greece

In Japan, 2010 forecasts for GDP growth, business investment and industrial production have risen strongly over the past few months after recent data releases have pointed to a swift turnaround from the recessions of 2008 and 2009. The upturn in activity during the first quarter has been led by the industrial sector. Output has recovered rapidly, underpinned by a revival in overseas demand, most notably from the rest of Asia. Since posting the first rise in 15 months in December, exports have increased by at least 40.0% (y-o-y) throughout the first three months of this year, helping to boost sentiment among manufacturing firms. In turn, employment conditions have also improved, producing the first signs of a pickup in wages and household demand. Deflation remains entrenched, however, with negative consumer prices expected to linger until at least 2011 according to the consensus.

In Greece, expectations for GDP growth have deteriorated rapidly on the news that the country will have to be bailed out in a joint venture by fellow Euro zone members and the IMF. As part of the deal, the Greek government recently passed stringent austerity measures including tax rises and substantial cuts in the public sector, leading to civil unrest in the country. After years of reckless spending and falsified country accounts, the cuts are necessary to control the level of debt which reached almost 120% of GDP last year. The substantial cutbacks will no doubt massively dampen activity in the economy, particularly consumer spending, as has been the case in the Baltic nations that were aided by the IMF and subjected to similar loan conditions. Consensus forecasts for Greek GDP growth have declined in each of the past six monthly surveys and with the country facing years of austerity measures it is unlikely to return to growth even in 2011.