Economy

Japan - Economic forecast summary (June 2016)

 

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Output growth has been slowed by a drop in demand from China and other Asian countries and by sluggish private consumption. Growth is projected to be around 0.7% in 2016 and 0.4% in 2017, as labour and capacity shortages and record-high corporate profits support business investment, employment and wages. The impact of the consumption tax hike planned for 2017 is expected to be partially offset by a pick-up in exports.


Raising output growth is essential to reduce the ratio of public debt to GDP, which will reach 234% in 2017. To achieve a primary budget surplus and maintain confidence in Japan’s public finances, it is necessary to implement a more detailed and concrete strategy to reduce spending and raise revenue, including by gradual increases in the consumption tax rate. Continuing the quantitative and qualitative easing policy until the 2% inflation target has been sustainably achieved is also necessary.


Structural reform to raise productivity is fundamental to long-term growth. Narrowing the productivity gap with the top half of OECD countries requires bold reforms, such as enhancing trade integration through the Trans-Pacific Partnership and other agreements, and increasing business-sector dynamism through improved corporate governance and regulatory reform. Boosting investment in knowledge-based capital, such as vocational education and training, is also essential to spur productivity growth.

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>>  Productivity country profile for Japan

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