• Kyodo

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Japan's economic recovery could be hampered if the spread of COVID-19 variants is not curbed, the OECD said Friday, amid growing concerns over the new omicron coronavirus variant.

In its latest report on Japan's economic and financial situation, the OECD noted that "losing the race against new variants could result in renewed states of emergency being declared delaying the recovery," despite progress in the government's vaccine rollouts.

Highlighting such risks in the world's third-largest economy as "sizeable," the Paris-based club of 38 mostly wealthy nations said the omicron variant could "aggravate" the employment prospects of young people after graduating.

Under virus emergencies, people had been asked to refrain from making nonessential outings and for nonessential businesses to temporarily close, although the requests were nonbinding.

Earlier this month, the OECD projected in its latest economic outlook that the Japanese economy will grow 1.8% in 2021 and 3.4% in 2022.

Since it was first reported to the World Health Organization by South Africa last month, the omicron variant, which is believed to be highly contagious and may pose an increased risk of reinfection, has led to growing uncertainty about the global economy.

"What is happening at the moment is that (omicron) is one of the downside risks that is now materializing," OECD Secretary-General Mathias Cormann told an online news conference. However, he added it is "a bit too early to tell yet what the precise implications of the omicron variant would be."

At the same time, the OECD highly rated the Japanese government's response to the pandemic so far, citing various measures that aided households and businesses, such as subsidies for pandemic-hit firms that were forced to furlough employees.

"These measures successfully kept unemployment low and prevented widespread firm failure" while curbing the virus spread, according to the report.

The OECD also said pursuing digitalization could "boost productivity growth and secure fiscal sustainability" for Japan, which has long been suffering from slow growth and a worsening fiscal condition on the back of a rapidly graying population.

Japan's fiscal health has been the worst among major developed countries, with public debt exceeding ¥1.2 quadrillion ($10.6 trillion) as of March this year, more than double its annual gross domestic product.

The country has been accelerating digitalization of public services after the pandemic further exposed the necessity for such reforms, with its Digital Agency launched in September under the administration of former Prime Minister Yoshihide Suga.

The report said digital services can make public spending more efficient in diverse areas such as health care, transportation and public investment.

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