WASHINGTON – The International Monetary Fund warned that Japan’s economy is unlikely to grow as strongly as the Abe government wishes in the medium term due partly to a labor shortage in the graying society.
Prime Minister Shinzo Abe’s administration decided last month to aim for a real expansion of 2 percent or more to attain its 2020 fiscal reform goal. But in an annual report on the Japanese economy, the IMF said Thursday that “growth is projected to stabilize at around 0.7 percent over the medium-term.”
The IMF urged Japan to adopt “prudent economic assumptions” and develop concrete measures to boost revenue and cut spending in order to impart further credibility on its fiscal strategy.
In a fiscal and economic policy blueprint adopted June 30, the government called for increased tax revenue from robust economic growth led by the business sector to restore the country’s debt-saddled fiscal health, the worst among major industrialized economies.
In an updated version of its World Economic Outlook report, the IMF projected that the Japanese economy will expand an annualized real 0.8 percent in 2015 and 1.2 percent in 2016.
But the projections could fall short due to continuously weak consumption and insufficient measures for fiscal consolidation and structural reforms, the Washington-based lender warned.
Japan needs “bold structural reforms to face the challenge of a rapidly shrinking labor force,” the IMF said, encouraging the country to tap more women and elderly people as a potential workforce.
The IMF also urged the Bank of Japan to “stand ready” to further ease its ultraeasy monetary policy to achieve its 2 percent inflation target but warned that the accommodative policy should come with “bolder structural reforms and a credible medium-term fiscal consolidation plan.”
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