a few firms have voiced doubt over the sustainability of economic growth going forward. even though the longest economic recovery in the post - war era has been achieved and demand has increased to such a degree that firms suffer from labor shortage more acute than during the bubble period, not a few firms have expressed cautious views about the future. the recent increase in uncertainties surrounding overseas economies likely has led to a more cautious sentiment among firms to some extent. in addition, there is also a possibility that the experience of prolonged low growth and deflation makes such uncertainties appear greater. however, there is no need to fall into excessive pessimism for reasons i will now explain. first, let us take a look at overseas economies. despite various risks, overseas economies have continued to grow firmly on the whole, with domestic demand in many economies continuing on an increasing trend. in the world economic outlook ( weo ) released by the international monetary fund ( imf ) in october, although forecasts were somewhat revised downward from the previous ones released in july, the annual real gdp growth rates for 2018 and 2019 are both projected to be 3. 7 percent, continuing to mark relatively high growth close to the peak registered since the global financial crisis ( chart 9 ). as for the u. s. economy, prospects for the long - term growth potential have improved compared to some time ago. another important point is that no overheating of the economy or notable financial imbalances have been observed. although the economic recovery of the united states has continued for more than 110 consecutive months, which is longer than japan's current recovery phase, so far no signs of the spread of a bubble can be detected. this is partly because the pace of growth has been moderate during this period and various financial regulations based on lessons learned from the global financial crisis have been put in place. given these observations, the continuing stable growth of the u. s. economy - - the growth engine of the global economy - - provides substantial grounds for confidence in japan's economy as well. second, the diversification of growth sectors of japan's economy is also an important factor enhancing the robustness of the economy. i mentioned earlier that services exports have made a substantial contribution to growth in external demand, while investment in structures has significantly contributed to growth in fixed capital formation, and such well - balanced growth is likely to raise the resilience of japan's economy to future shocks. third, a point worth mentioning is that the profitability

on - year rate of change in the cpi excluding fresh food and energy, which more clearly shows the underlying trend in prices, has generally continued to be positive for more than five years since mid - 2013. although the cpi has continued to show relatively weak developments compared to the economic expansion and the labor market tightening, the economy at least no longer has been in deflation over the past few years in the sense of a sustained decline in prices. recent economic developments and risks concerning overseas economies as i just outlined, japan's economic activity and prices have improved significantly over the past six years. currently, the economy is continuing its moderate expansion. although the real gdp growth rate for the july - september quarter of 2018 was negative on a quarter - on - quarter basis, this likely is mainly because of the series of natural disasters, which temporarily have exerted downward pressure on such components as exports, production, and tourism. in fact, looking at developments since october, these components have started to increase again after the decline in the july - september quarter ( chart 7 ). as for the outlook, japan's economy is likely to continue its moderate expansion. regarding this outlook, however, it is necessary to bear in mind that uncertainties have recently been growing, mainly with respect to developments in overseas economies. in particular, it is necessary to pay close attention to recent protectionist moves, including the trade friction between the united states and china. while the results of the recent tankan ( short - term economic survey of enterprises in japan ) show that the impact of this problem on japan's economy so far likely has been limited, some firms have voiced that it is difficult to accurately gauge the potential impact at this point given that economies have become increasingly interdependent through global supply chains. protectionist policies clearly do not benefit any economy, and it is likely that a brake will be put on excessive protectionist moves at some point. however, if we regard this problem of trade friction as part of the broader issue of determining the future relationship between the united states and china, it is undeniable that resolving the trade friction may take time. in this case, there is also a risk that the impact of this problem on trade activities and economic activities in various economies could become complex and broad - based, and that, depending on future developments, the negative impact could be amplified through a deterioration in business sentiment and instability in financial markets. attention also needs to be paid to other risks originating from overseas economies such as