Remarks by Angel Gurría
Tokyo, Japan, 14 April 2017
(As prepared for delivery)
Dear Nikai-san, Ito-san, Parliamentarians, ladies and gentlemen,
It is a great pleasure to be here today with the Friends of the OECD Parliamentary Group. We are honoured by the presence of my good friend, Nikai-san, who was the driving force in establishing this Group in 2014, when we celebrated the 50th anniversary of Japan’s membership in the OECD.
I had the privilege yesterday of presenting the 2017 OECD Economic Survey of Japan to Prime Minister Abe and to journalists at the Japan Press Club. This is the seventh Survey of Japan that I have launched as Secretary General.
We are presenting this study at a complex moment. Our latest Interim Economic Outlook confirms that a modest upswing is underway: we project global GDP growth of 3.3% in 2017, rising to 3.6% in 2018. This modest pick-up largely reflects the continuing fiscal and structural reforms in Japan’s key trading partners – notably China, Canada and the United States – as well as, a slightly more expansionary fiscal stance in the euro area. China will remain the major driver of global growth for the foreseeable future with its economy set to grow by around 6.5% in 2017 and 6.3% in 2018. However, financial risks are mounting on the back of rising corporate debt, excess industrial capacity and inflated housing prices.
Yet, the global economy still faces many global risks, vulnerabilities, and policy uncertainties. Weak investment and trade continue to weigh on the drivers of consumption, such as productivity and wage growth; while other emerging dangers such as growing populism and protectionism risk derailing the fragile recovery.
In this difficult context, it is encouraging to see that some of our OECD countries are improving. This is the case of Japan. Our Survey highlights some of the favourable outcomes from Abenomics. For example, during the past four years, real output per person in Japan has more than doubled to 1.2% (compared to an average 0.5% in 1997-2012), getting pretty close to the OECD average; and employment has risen 3%, pushing the unemployment rate down to 2.8%, the lowest since 1994.
GDP growth in 2017 will improve slightly to 1.2% (from 1.0% in 2016), driven by job creation, a pick-up in wages and record high corporate profits. GDP growth is projected to decelerate to 0.8% in 2018, as the fiscal support fades, but Japan will continue growing, albeit at a modest pace.
These are positive signs. However, Japan is still facing many important economic and social challenges. Let me bring your attention to three of them that we consider crucial for Japan’s present and future.
Firstly, one of our main concerns is labour shortages, which result from Japan's decreasing population. The numbers are pretty sobering. The population is projected to fall by almost a quarter by 2050 to below 100 million. Meanwhile, the share of the population over the age of 65 will rise from 26% to almost 40%, remaining the highest in the OECD.
It’s no exaggeration to say that Japan’s future economic prosperity and the well-being of its people depend on a large extent on how it manages this unprecedented demographic transition.
“Womenomics” – allowing women to play a greater role – is therefore a priority. While the female employment rate has risen significantly, much of the increase has been in non-regular jobs, with hourly pay of only 60% of that earned by regular workers.
The segmentation of the labour market into regular and non-regular workers – two-thirds of whom are women – contributes to Japan’s large gender wage gap of 27%. As Prime Minister Abe stated, the goal should be to “eliminate the term ‘non-regular workers’.”
Secondly, boosting productivity to promote inclusive growth. Labour productivity in Japan is about a quarter below the top half of OECD countries, which is surprising given that Japan is a front-runner in science and technology and has a high level of human capital. Meeting Japan’s demographic and fiscal challenges requires increasing productivity.
Reform priorities discussed in the Survey include improving the personal bankruptcy system to facilitate the exit of non-viable firms, promoting entrepreneurship, successfully implementing Japan’s new Stewardship and Corporate Governance Codes and increasing Japan's integration in the world economy.
And thirdly, the major issue dealt with in the Survey is the high and rising level of government debt. Rapid population ageing will further increase government social spending putting pressure on the fiscal situation.
Implementation of a detailed and credible fiscal plan is essential to maintain market confidence and to achieve the government’s goal of putting its debt ratio on a downward trend in the 2020s. Controlling government spending requires measures by both the central and local governments.
The Survey sets out a number of recommendations for controlling public social spending, which has been increasing rapidly during the past few decades.
Additional tax revenue is also needed, primarily through gradual increases in the consumption tax rate. Even with the hike to 10% in 2019, the rate will remain among the lowest in the OECD and about half of the average. Further revenues could come from broadening the personal income tax base and increasing environmental taxes.
These are just a few brush-strokes of the type of recommendations you can find in this Survey.
Dear parliamentarians, friends,
Abenomics can produce the resilient and inclusive growth that Japan needs. You need to keep the effort implementing bold structural reforms, improving government spending and applying an expansionary monetary policy. But let’s not forget the supreme objective of all these measures: to promote broad and shared human well-being.
Your role as parliamentarians – the ‘voice of the people’ – is crucial in achieving this objective, passing important reforms and fine-tuning policies and regulations. The OECD is your ally in this venture. Let’s keep strengthening our collaboration to improve economic performance and social progress and to create better policies for better lives for the benefit of all Japanese citizens.
I hope this Survey helps us deliver.
Thank you very much.