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*OECD eyes 0.1% negative growth for Japan in 2009*
TOKYO, Nov. 25 KYODO
The Organization for Economic Cooperation and Development projected
Tuesday that Japan's economy will contract 0.1 percent in 2009 from the
previous year, as the global economic downturn and appreciation of the yen
will hurt external demand.
The OECD, which released outlines of its latest economic outlook report
in advance on Nov. 13, slightly revised downward the projected growth rate
for all the 30 members from minus 0.3 percent to minus 0.4 percent,
reflecting the 2008 July-September growth data released by many economies
since then.
In the latest report, the Paris-based rich countries' group forecast
that the 15-nation eurozone economy will shrink 0.6 percent in 2009, down
from the previous estimate of 0.5 percent, but kept its projection that the
U.S. economy will contract 0.9 percent.
''Many OECD economies are in or are on the verge of a protracted
recession of a magnitude not experienced since the early 1980s,'' the
semiannual report said. ''Inflation will abate in all OECD countries and
some even face a risk, albeit small, of deflation.''
The OECD said of Japan, ''The expansion -- the longest in Japan's
post-war history -- came to an end around mid-2008 with a sharp contraction
in exports, reflecting the slowdown in world trade and marked yen
appreciation.''
The document noted the yen has advanced 16 percent against other
currencies in trade-weighted terms since July 2008, dimming the prospects
for the nation's exports.
''Business investment, another important source of past growth, has
also been declining, weighed down by stalling business confidence and
slowing external demand,'' the report said.
It referred to the Bank of Japan's latest Tankan quarterly business
sentiment survey, which showed Japan's major manufacturers' confidence in
the three months through September fell to a five-year low level.
As for price levels, the semiannual report also pointed to a risk that
slower economic growth and anemic wage increases ''would push Japan back
into deflation'' by mid-2009.
The OECD paper also said equity prices in Japan dropped 24 percent in
October alone, leading to tighter financial conditions and reducing
household wealth.
The OECD acknowledged that fiscal stimulus measures worth 26.9 trillion
yen announced in late October ''will cushion the downturn in 2009.''
Randall Jones, an OECD senior economist in charge of Japan, said in a
teleconference linking Tokyo with Paris that Tokyo's plan to provide cash
benefits totaling 2 trillion yen to households ''will probably be the most
effective way in trying to have an immediate impact on the economy.''
With the stimulus package and expected improvement in terms of trade,
to be caused by the yen's appreciation and the lowering of crude oil prices,
the Japanese economy is projected to recover led by rises in domestic demand
and private consumption, Jones said.
The OECD forecast Japan's real gross domestic product growth rate will
reach 1.0 percent by the end of 2010.
Jones said that at a time of a crisis fiscal stimulus policy can work
better than monetary easing policy to shore up the economy, and that the
cash benefit program will be quicker than infrastructure building projects
in bringing about favorable economic results.
But the report warned that Tokyo should focus again on fiscal
consolidation after Japan's economy stabilizes because the government debt
ratio remains the highest among the 30 members of the OECD.
The document said Japan should not ditch its goal of achieving a
primary balance surplus in fiscal 2011. ''Meeting this objective, even if a
little later, is a necessary first step to reducing the government debt
ratio,'' it said.
A primary balance surplus is achieved when outlays other than
debt-servicing costs are covered by revenues without relying on fresh debt
issuance.
The OECD also said the recent cut by the BOJ of its key policy interest
rate from 0.5 percent to 0.3 percent ''should be accompanied by measures to
support activity by providing sufficient liquidity to the market to limit
the impact of financial stress and mitigate deflationary pressures.''
Jones said that as Japan is expected to experience mild deflation from
mid-2009, the BOJ should study further cutting its key rate or reintroducing
a ''quantitative easing'' policy, under which the bank floods the financial
system with liquidity to conquer deflation.
The OECD report also urged Japan to continue to implement structural
reforms, saying measures to boost productivity, particularly in the service
sector, ''remain a priority to improve living standards in the face of a
shrinking working-age population.''
==Kyodo
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