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2005 OECD Economic Outlook, Volume 2005 Issue 1

image of OECD Economic Outlook, Volume 2005 Issue 1

Presents OECD's assessment of the economic outlook to the end of 2006 for the OECD area and China, Brazil, and the Russian Federation.  It finds that Japan and the US have rebounded but that Europe is lacking in sustained momentum, and it carefully examines why. This issue of the OECD Economic Outlook also includes several medium-term scenarios projecting to 2010. The special chapter covers measuring and assessing underlying inflation.

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Japan

Economic growth resumed at the beginning of 2005 after a pause in the latter half of 2004. The expansion is led by domestic demand, which is underpinned by strong corporate profits and a reversal of the declining trend in employment and wages. Despite a deceleration of export growth, the economy is projected to expand at a rate of between 1½ and 2% in 2005 and 2006, reducing the unemployment rate to 4% and helping to bring an end to deflation as measured by the core consumer price index.

The Bank of Japan’s policy of quantitative easing should continue until inflation is sufficiently high so as to make the risk of renewed deflation negligible. Achieving the medium-term fiscal targets, which aim at a primary budget surplus in the early 2010s, is essential to slow the upward trend in public debt and maintain confidence in fiscal sustainability. Further progress in strengthening the banking sector is needed to help sustain economic growth, accompanied by a broad structural reform programme to improve competition, open new areas to the private sector and privatise Japan Post.

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