The OECD has just published its latest Economic Survey of Japan. According to the report Japan is poised for an economic expansion, but long-term growth prospects remain contingent on additional efforts to revitalize the economy and reduce unsustainable levels of public debt.
The survey 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.
The study 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 plan should include spending cuts and tax increases large enough to bring the budget back into primary surplus by 2020 and stabilize 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 whole report is available for the IESE Community here.