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Wednesday, 12th June 2013

OECD suggests Japan and US leading economic recovery

In some good news for the east Asian economy, the Organisation for Economic Cooperation and Development (OECD) has noted faster growth in Japan and America. 

The OECD said that the strength of the US and Japanese economies was helping other developed countries to improve. 

A report which tracks economic activity in 33 of its member countries increased from 100.5 points in March to 100.6 in April. Overall, the average of the index is 100. 

Specifically Japan's index rose from 100.9 to 101.1, indicating that the monetary stimulus announced by the Bank of Japan may be having a positive impact on the economy. 

Angel Gurria, secretary-general of the OECD, suggested that Prime Minister Shinzo Abe's so-called Abenomics policies may help to cut the country's debt and fuel the economy. He went on to offer his support to Japan. 

Speaking in an interview with The Wall Street Journal, Mr Gurria said: "We're all rooting for them because we know that the alternative of trying milder approaches has effectively not worked very well." 

Referring to the country's projected debt, which is thought to reach 230 per cent of its gross domestic product (GDP) by 2014, Mr Gurria said: "You want to come down from the heights, you can't breathe very well, without oxygen at 220 per cent debt-to-GDP. It's like breathing (at the top of Mount) Everest." 

In May, the OECD reported that with debt in excess of 200 per cent of GDP, "Japan's fiscal situation is in unchartered territory". 

To reverse the situation Japan, it said, needs to experience "robust nominal GDP growth" along with a plan to help control spending and raise revenue. 

The OECD suggested that the key to cutting spending lay in "reforms to contain age-related outlays … while the consumption tax should be the main source of additional revenue". 

In addition, the OECD stated that Japan needs to introduce "an earned income tax credit" to help curb poverty and keep inequality in check. 



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