LONDON – The OECD on Monday cut its economic outlook for the Group of Seven nations in 2014, including Japan, while expecting a moderate expansion to continue in most of the major economies.
In its interim economic assessment report, the Paris-based organization also said the “most worrying feature” of the projections is the continued slow growth in the euro area, where it says the anemic state of demand is reflected in the decline in inflation.
As for Japan, which saw an annualized real 7.1 percent contraction in gross domestic product in the April-June quarter due to the 3-percentage-point consumption tax hike on April 1, the OECD said the economy is expected to expand 0.9 percent this year and 1.1 percent next year, downgraded from its May forecasts of 1.2 percent and 1.3 percent.
The first round of the planned two-stage sales tax resulted in “volatile demand” in the first half of 2014, the report said, but “the underlying recovery is expected to reassert itself” in the second half of the year, reflecting growing employment and other factors.
The eurozone, meanwhile, is estimated to grow 0.8 percent in 2014 and 1.1 percent in 2015, compared with the earlier growth forecasts of 1.2 percent and 1.7 percent, according to the report.
“The recovery in the euro area has remained disappointing, notably in the largest countries: Germany, France and Italy,” the OECD said, while noting that the possibility that euro area inflation will stay low and exacerbate weak demand is a “key risk.”
The U.S. economy is projected to grow 2.1 percent in 2014 and 3.1 percent in 2015. In May, the OECD estimated that it would expand 2.6 percent and 3.5 percent.
The OECD also pointed out to some geopolitical risks that have hung over the global economy, such as the intensifying conflicts in Ukraine and the Middle East as well as the increasing uncertainty about the outcome of the referendum on Scottish independence.
Turning to macroeconomic policy, the OECD said the euro area needs more vigorous monetary stimulus and that Japan still needs quantitative easing to secure a lasting break with deflation.
The Bank of Japan has provided ample liquidity to the economy through asset purchases from banks, while aiming to achieve its 2 percent inflation goal in or around fiscal 2015 under what it calls “quantitative and qualitative easing.”
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