23/04/2013 - Japan is poised for an economic expansion, but long-term growth prospects remain contingent on additional efforts to revitalise the economy and reduce unsustainable levels of public debt, according to the OECD’s latest Economic Survey of Japan.
The new Survey, presented in Tokyo by OECD Secretary-General Angel Gurría, forecasts the Japanese economy will grow by about 1.5% annually in 2013 and 2014. The report hails Prime Minister Shinzo Abe’s three-pronged strategy -- bold monetary policy, flexible fiscal policy and a growth strategy -- to end 15 years of deflation and relaunch economic growth.
|"Abenomics has changed the mood in Japan, bolstering confidence for private sector firms and households alike,” Mr Gurría said. “The coming expansion will be driven by exports, and should increase business investment and employment and bring an end to deflation. While we are encouraged by these developments, it remains critically important for Japan to address extremely high and still rising levels of government debt and other challenges posed by its ageing population,” Mr Gurría said.
Download the underlying data in Excel format: http://dx.doi.org/10.1787/888932797746
The Survey points out that Japan’s gross public debt reached 220% of GDP in 2012 - the highest level ever recorded in the OECD area – while the budget deficit is hovering around 10% of GDP. With the debt ratio moving further into uncharted territory, the report underlines the urgent need to restore fiscal sustainability. “The sustainability of public finances is a major concern, but I hope that the medium-term fiscal plan that the government has promised to present later this year will help improve the situation,” Mr Gurría said.
The plan should include spending cuts and tax increases large enough to bring the budget back into primary surplus by 2020 and stabilise the public debt ratio. A detailed and credible package is essential to maintain market confidence in Japan's fiscal situation, mitigating the risk of a run-up in long-term interest rates, the OECD said.
The Survey covers a range of other topics, including recommendations to:
Use regulatory reform to boost growth. This is particularly necessary in the agriculture sector, where high levels of public support and stringent market access restrictions protect a dwindling number of ageing, uncompetitive farmers. The OECD says Japan can create a more competitive agriculture sector by promoting consolidation of farmland to boost productivity; phasing out supply control measures; and shifting to less distorting forms of government support. A more market-oriented agricultural sector would promote Japan's integration in the world economy, thus boosting Japan's growth potential.
Promote green growth and restructure the energy sector. The Fukushima nuclear accident has opened the door to a new energy policy. The reduced role of nuclear power increases the need for other energy sources, including renewables, which currently account for about 11% of electricity generation, or about half the OECD average. Increasing the use of renewables will green the economy and help Japan reduce its greenhouse gas emissions. Japan also has an opportunity to restructure the electricity sector, including the unbundling of generation and transmission and expanding competition in the wholesale and retail markets.
Increase women’s participation in the labour force. To face the challenges posed by the ageing population, Japan needs to make the most of its human resources, particularly women. . This will require, inter alia, reforming the tax and social security system, encouraging better work-life balance, and increasing the availability of affordable childcare.
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