Japan's GDP outlook slashed again by OECD

 The Organization for Economic Cooperation and Development (OECD) in its global economic outlook report released Wednesday said Japan must reduce its budget deficits and downgraded its forecast for the nation's gross domestic product for the second time in two months.

In its latest report the paris-based OECD, comprising 34 of the world's richest nations, said that Japan has yet to produce credible plans to stabilize its burgeoning debt and needs to specify how it will achieve such goals.

The report said recession-hit Japan would post negative growth figures in 2011 with its real gross domestic product contracting 0. 9 percent from the previous year, amplified by the ongoing impact of the March 11 earthquake and tsunami.

The organization downgraded its forecast from last month's expectations for growth of 0.8 percent due to a severe loss of production and output following the March 11 disasters.

Although the OECD highlighted severe concerns about Japan's debt sustainability and plunging deficits, the organization said that for 2012 the economy is likely to rebound as supply chains disruptions are fully restored and spending on reconstruction and restoration sparks further growth and development.

"The immediate impact has been to reduce output, although this is likely to be reversed by a strong recovery in the second half of 2011 led by reconstruction efforts," the OECD said.

Expectations are for Japan's economy to grow 2.2 percent in 2012 as reconstruction funds flow into the economy, but the forecast still falls shy of the 2.3 percent growth figure the organization proffered in April.

The OECD also highlighted difficulties in predicting when exactly Japan's economy would reach a turning point, with the report stating: "The timing and strength of an economic rebound is exceptionally difficult to project."

In addition the report said that Japan's unemployment rate will fall to 4.5 percent by the end of 2012 from a previous forecast of 4.8 percent for the current quarter and deflationary pressures are likely to continue through 2012.

In light of Japan's debt burden expected to reach 212.7 percent of GDP at the end of this year and 218.7 percent in 2012, the OECD urged Japan to formulate a viable fiscal consolidation plan.

"It is important to finance reconstruction spending by shifting expenditures and increasing revenues. A detailed and credible fiscal-consolidation program, including tax increases and spending cuts large enough to achieve the government's target for stabilizing the public debt ratio by 2020 is a priority," the report stated.

The report also urged Japan's central bank to maintain its accommodating monetary policy "until underlying inflation is firmly positive."

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