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The Organization for Economic Cooperation and Development said Japan’s potential growth rate will be the lowest among Group of Seven nations, casting doubt on Prime Minister Yukio Hatoyama’s growth target.

Japan’s annual average potential growth rate will be 0.9 percent between 2011 and 2017, OECD Chief Economist Pier Carlo Padoan said in Tokyo Friday. The U.S. has the highest economic speed limit in the G7, at 2.2 percent, the OECD said.

The report reinforces concern that deflation and a shrinking population will weigh on Hatoyama’s aim for annual growth of at least 2 percent in the next decade. Finance Minister Naoto Kan has said the goal is achievable and “critical” to reduce the world’s largest public debt.

The Democratic Party of Japan-led government should focus more on boosting productivity, cutting the highest corporate taxes in the 30-member OECD, and relaxing restrictions on foreign investment, which is the second-lowest among the group, the Paris-based organization said.

Padoan said in an interview that price declines will persist in Japan. Deflation is showing “no signs of ending,” he said after a government report showed consumer prices fell for a 12th month in February.

The Hatoyama administration this week passed a record ¥92.3 trillion budget for the year starting April 1, including child care benefits and free public high school tuition, measures Padoan says may not be enough to boost the birthrate as intended.

“These policies do not appear to be sufficient to achieve the objective of a sustainable increase in birthrates,” Padoan said. The Hatoyama government “does not discuss the fiscal implications of policies to achieve the growth target,” he said.

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