Japan has been hit hard by surging food and energy prices, but has avoided the credit crunch and collapsing house prices that have undermined so many economies in the West. Indeed, the Japanese economy is still in relatively good shape compared to similar points in previous downturns and should be among the first to recover as the global inflation shock recedes later this year. On the basis of the Q2 numbers and revisions to the back data, we are halving our GDP forecast for this year, from 2.0% to 1.0%. However, we expect growth to pick up again to around 1.5% in 2009 and 2010.
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