Japan's government forecast on Friday the economy will grow faster than private-sector projections in fiscal 2019, with exports, domestic private consumption and capital spending expected to offset the hit from a planned sales tax hike.
The Cabinet Office's projections, presented at the Council on Economic and Fiscal Policy - the government's top economic panel, showed the economy was likely to grow 1.5 percent in price-adjusted real terms in the fiscal year starting in April 2019. It is expected to expand 2.8 percent in nominal terms.
Market economists see the economy growing just 0.8 percent in real terms and 1.8 percent in nominal terms, reflecting the impact from a planned sales tax increase in October 2019.
The government's lofty growth estimates highlight Prime Minister Shinzo Abe's desire to secure higher tax revenue as he attaches greater importance to growth than austerity to revive the economy and restore tattered public finances, analysts say.
"The government's projections seem to underestimate uncertainty over the global economy and domestic labour shortages," said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities.
"A trade war between the United States and its trading partners could weigh on global growth, which would in turn exert downward pressure on Japan's export-led economy."
The Cabinet Office also forecast overall consumer prices would rise 1.5 percent in fiscal 2019. Stripping out a boost from the planned sales tax hike, the government sees overall consumer price growth around 1.0 percent, a Cabinet Office official said.
In comparison, private-sector economists expect core consumer prices, which exclude fresh foods but include oil products, rising 1.0 percent, while the central bank estimates core inflation at 1.8 percent in fiscal 2019.
The Bank of Japan is likely to cut its price growth forecasts at a policy meeting later this month as long-term inflation expectations stall, sources said, highlighting the central bank's difficulty in hitting its elusive 2 percent price target.
Japan's core consumer prices in May rose 0.7 percent from a year earlier, unchanged from the previous month and well below the BOJ's target.
For the current fiscal year that started in April, the Cabinet Office kept its overall consumer price growth forecast at 1.1 percent, unchanged from its estimate at the start of this year.
The jobless rate is expected to fall to a 26-year low of 2.4 percent in fiscal 2019, reflecting the tight labour market.
The Cabinet Office cut growth projections for fiscal 2018 to 1.5 percent in real terms from 1.8 percent seen earlier, and to 1.7 percent in nominal terms from an earlier forecast of 2.5 percent, due partly to a slowdown in property investment.
The Cabinet Office issues twice-yearly growth and price projections to provide a basis for guiding economic policy and compiling the annual state budget.