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OUTLOOK

Israel*

Japan

Growth pick-up to continue

Structural reforms essential

The 2016 pick-up in growth should continue, reaching 3.25% in 2017-18. Support from slight budgetary easing, very low interest rates and measures to support the low-paid should continue to stimulate domestic demand and employment. However, the ongoing weakness of the international environment and the impact of exchange rate appreciation on foreign trade are projected to hold back export growth.

Economic growth is projected to reach 1% in 2017 before slowing to 0.8% in 2018, boosting headline inflation to 1.25% by the end of 2018. With three supplementary budgets in 2016, fiscal consolidation is pausing, helping Japan to cope with the impact of the yen appreciation. Private consumption is projected to continue rising in the context of labour shortages and the historically high level of corporate profits.

So long as inflation remains low, an accommodative monetary policy remains appropriate to damp currency appreciation. The rise in mortgage rates induced by the macro-prudential measures adopted by the Bank of Israel to stabilise the property market is welcome. Reforms designed to increase competition in banking should be extended to other sheltered sectors (such as farming) to enhance supply and productivity and foster catchup. Lowering the regulatory burden on businesses by simplifying complex administrative and licensing procedures should be further promoted.

The Bank of Japan should maintain monetary easing, as intended, until inflation is stable above the 2% target, while taking account of costs and risks in terms of possible financial distortions. Structural reforms are essential to boost productivity and bring more people, especially women, into employment. This would enhance social cohesion, and reduce Japan’s high relative poverty rate. Faster growth is critical to stopping and reversing the run-up in public debt, which is projected to reach 240% of GDP by 2018.

GDP growth 2013

GDP growth 2016

Current prices NIS billion

1 059.1

2017

2018

% real change

3.3

3.4

2015

2016

Current prices JPY trillion

3.3

499.3

2017

2018

% real change

0.8

1.0

0.8

* The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

Italy

Korea

Moderate recovery

Growth continuing at a moderate pace

The economy will grow by 0.9% in 2017 and 1% in 2018. Despite stronger job gains, private consumption growth has weakened following rising uncertainty and declining consumer confidence. The large stock of non-performing loans and the uncertain recovery keep hampering banks’ loan disbursements, hindering the recovery of investment. Low growth in Italy’s export markets and geopolitical tensions are restraining exports.

Economic growth continued at a moderate pace in 2016, supported by a supplementary budget and record low interest rates. Growth is projected to edge up from 2.75% in 2016-17 to 3% in 2018. Inflation is projected to converge to the central bank’s 2% target by 2018, and the current account surplus to remain large at 6.5% of GDP.

Accommodative euro-area monetary conditions are supporting the moderate recovery. The 2017 budget will appropriately support growth, and a further fiscal easing is assumed in 2018. Nonetheless, lower interest payments will help keep the budget deficit stable. The government is making progress on structural reforms, including active labour market policies, the public administration and the school system.

GDP growth 2015

GDP growth 2016

Current prices EUR billion

1 641.5

46

The Bank of Korea reduced its policy rate to an all-time low of 1.25% in mid-2016. Concerns about rapidly rising household debt suggest fiscal policy may now be better placed to take some of the burden. The planned budget consolidation in 2017 will restrain growth. Instead, to support growth, government spending should be increased beyond the levels set in the National Fiscal Management Plan. In addition, structural reforms are needed to boost productivity and labour participation as the working-age population begins to decline.

2017

2018

% real change

0.8

0.9

2013

2016

Current prices KRW trillion

1.0

1 429.4

2017

2018

% real change

2.7

2.6

3.0

OECD Observer No 308 Q4 2016  
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