OECD Sees Japan Economic Growth Slowing To 1.5-2.0% Through 2006

Japan's economy is expected to grow in a range of 1.5 to 2.0% this year and next, slowing down from the export-led expansion of 2004, the OECD said May 24.

The world's second-largest economy is forecast to grow at 1.5% in 2005 and 1.7% in 2006, down from 2.6% last year, the Organization for Economic Co-operation and Development said in its Economic Outlook.

Increased full-time job creation and a recovery in salaries are expected to help the country move out of deflation, with consumer prices seen rising 0.1% in 2006 after dropping 0.2% this year. The OECD forecast Japan's jobless rate would continue falling to 4.4% in 2005 and 4.1% in 2006 from 4.7% last year.

The OECD sees a combination of spending restraint and higher revenue from a hike in public pension premiums and the phasing out of temporary tax cuts as impacting on fiscal policy in the coming two years. "Further gains in employment, accompanied by rising wages, should support private consumption growth," it said. "Increased profits in the business sector ... are expected to sustain business investment, though at a slower pace."

At the same time, the OECD warned: "A delayed pickup in world trade or a significant appreciation of the yen would slow growth." A stronger yen makes Japanese goods more expensive overseas and trims exporters' repatriated revenue, which could hurt overall growth. Japan is struggling to cling to steady growth after slipping into a mild recession in the middle of last year. It now counts on rising domestic demand as growth in exports has been slowing.

Copyright Agence France-Presse, 2005

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