OECD upgrades Japan’s growth outlook for 2015, 2016

Kyodo, Bloomberg

The Organization for Economic Cooperation and Development on Wednesday upgraded its growth outlook for the economy for 2015 and 2016, aided by lower oil prices that are expected to boost global demand.

In its interim economic assessment report, the Paris-based organization said Japan’s economy is now expected to expand 1 percent this year, revised up from its November forecast of 0.8 percent, and grow 1.4 percent in 2016, up from the previous estimate of 1 percent.

“Demand will be lifted by the fall in oil prices, the fiscal stimulus package for 2015 and the announced continuation of monetary easing measures,” the OECD said in the report.

Meanwhile, it urged Japan to make further progress in structural reforms, saying, “Structural changes to boost competition, trade and labor force participation are essential to raising the growth of potential output.”

The OECD also raised its growth outlook for the eurozone, saying it now expects the economy to expand 1.4 percent in 2015 and 2 percent in 2016, upgraded from previous forecasts of 1.1 percent and 1.7 percent.

In upgrading its view, the organization said the eurozone economy will benefit from lower oil prices and the effects of a quantitative monetary easing program launched by the European Central Bank earlier this month.

It left unchanged its outlook for the United States, saying the world’s largest economy is expected to grow 3.1 percent this year and 3 percent in the following year.

The U.K. forecast was trimmed by 0.1 point to 2.6 percent.

The OECD made downward revisions for commodity-exporting countries, including Brazil, where it now expects an economic contraction of 0.5 percent this year.

In addition to being hit by the drop in oil prices, the Brazilian economy will be restrained by “fiscal and monetary tightening” as well as “growing political uncertainty,” it said. Across the emerging markets, the OECD expects India to become the fastest growing economy by next year, overtaking China, but noted that obstacles in the implementation of structural reforms could effect the “strong current momentum.”

The OECD also noted that, while the risks associated with abnormally low interest rates should not deter central bank action, mispricing and excessive risk-taking driven “by liquidity rather than fundamentals” remain a concern.

“It is remarkable that a growing number of national governments are able to sell medium-term bonds at negative nominal interest rates,” it added.