OECD - OECD Economic Surveys: Japan 2019

• Growth has strengthened but Japan faces long-term challenges

• Output growth is projected to continue at a moderate pace

• Japan needs a detailed and concrete plan to ensure fiscal sustainability

• Reducing obstacles to employment

• Raising productivity is important to offset the impact of falling labour inputs

• Boosting well-being by improving the environment and slowing climate change

Source : OECD Economic Outlook database.

StatLink http://dx.doi.org/10.1787/888933953069

Japan faces the intertwined challenges of rapid population ageing and high government debt. Ageing is partly driven by long life expectancy. Half of the children born in Japan in 2007 are expected to live to the age of 107, which has major implications for the labour market. The number of elderly is projected to rise from 50% of the working-age population in 2015 to 79% by 2050, remaining the highest in the OECD (Figure B).

The increasing elderly population has driven a sharp rise in social spending since 1992. Twenty-seven consecutive years of budget deficits have driven gross government debt to 226% of GDP in 2018, the highest ever recorded in the OECD area. The government projects that population ageing will boost spending on health and long-term care by 4.7% of GDP by 2060. Measures to ensure the sustainability of Japans social insurance programmes, as spending rises and the number of working-age persons falls from 2.0 per elderly to 1.3 by 2050, is a priority.

Figure B. Japans population is projected to remain the oldest in the OECD in 2050

Note: Population aged 65 and older as a share of the population aged 20 to 64.

Source : OECD Demography and Population database.

StatLink http://dx.doi.org/10.1787/888933953088

Output growth is projected to continue at a moderate pace

Output growth has slowed since 2017, reflecting weaker exports as world trade decelerated (Figure C). Still, output growth is expected to remain close to per cent through 2020, as shortages of labour and capacity, combined with record-high profits, continue to support business investment and wages. The temporary effect of the planned hike in the consumption tax rate from 8% to 10% in October 2019 will be less than after the 2014 tax hike thanks to offsetting fiscal measures.

Figure C. The economy is projected to grow around per cent a year in 2019 and 2020
	2018	2019	2020
Gross domestic product	0.8	0.8	0.7
Private consumption	0.4	0.6	-0.1