On December 19, 1991, the Economic Planning Agency (EPA) and the Ministries of Finance and International Trade and Industry agreed on a government economic forecast that the economy will grow by 3.5 percent in real terms, or 5 percent in nominal terms in fiscal 1992. On the 21st, the Cabinet formally set the official government estimate of growth at 3.5 percent. The government is aiming at sustainable growth with brisk domestic demand as the source of demand growth. It predicts that the contribution of domestic demand to growth will be 3.6 percent, while external demand will be negative by about 0.1 percent.
The government economic forecast does not simply report business trends but also acts as a target for government economic management for the coming fiscal year. Thus, it is compiled and released in coordination with the government's budget which mirrors the basic stance of policy management.
The EPA, the main government agency which works out the government's economic forecast, insisted that the growth forecast be set at the 3.3-3.4 percent level. This figure suggests they believe that domestic demand growth will be stronger than the 1991 level and that this will mean continued firm growth without fears of recession. MITI, on the other hand, favored that the pace of growth should be at the 3.6-3.9 percent level, contending that "it is unwise for Prime Minister Miyazawa, who supports high growth, to forecast the slowest pace of growth in the past 10 years". Government officials finally settled on the 3.5 percent growth level. Reasons are: first, they felt that predictions of 3.1-3.4 percent growth would likely have a negative effect on corporate confidence which has begun to turn down. Second, Japan needs to show that it is making the utmost efforts to expand domestic demand in the wake of recent reports of a slowdown in the global economy, including in the U.S. .
Meanwhile, an overwhelming majority of private research institutes have predicted that the economy will grow at around 3 percent, and many have raised doubts regarding the government's growth forecast. Fifty-three private research institutes of banks, security houses and life-insurance firms predicted an average 2.9 percent expansion. Nomura Research Institute of Technology and Economics and Dai-Ichi Kangyo Bank painted pessimistic pictures of the outlook for the nation's economy, forecasting growth of 2.3 percent. The most hopeful forecast was by the National Economics Research Institute, predicting 4.0 percent growth. Nomura analyzed that substantial expansion of the treasury investment and loan budget, even if implemented at this time, will prove effective from the summer at the earliest, thus making it impossible for GNP growth to reach 3.5 percent. A report compiled by Itochu Economic Research Institute stated, "It will be difficult to achieve the 1992 government economic forecast in terms of both the real growth rate and trade surplus. From current business trends, chances are high that there could be a drop in the nation's economic growth below 3 percent and a surge in the trade surplus to around the $100 billion level. To attain 3.5 percent real GNP growth, a steady economic growth must be expected in the summer-fall period of 1992. This will require substantial domestic demand expansion and furthermore, will require the third Bank of Japan discount rate cut."
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