1 3. DEVELOPMENTS IN INDIVIDUAL OECD AND SELECTED NON-MEMBER ECONOMIES. JAPAN . Economic growth is projected to reach 1 per cent in 2018 and 2019, supported by exports, business investment and private consumption. In addition to buoyant international trade, firms facing labour shortages will increase business investment and employment. Wages are projected to edge up, although the gains to households will be partially offset by higher inflation, which is expected to rise to 1 per cent in 2019. The current account surplus is projected to remain close to 4% of GDP through 2019. Government debt relative to GDP is the highest ever recorded in the OECD area, which poses serious risks.
2 Achieving fiscal sustainability requires a detailed consolidation programme that includes measures to control spending in the face of rapid ageing, and gradual hikes in the consumption tax rate, beginning with the planned increase in 2019. The Bank of JAPAN is expected to maintain its expansionary monetary policy until the 2% inflation target is achieved, which is appropriate. Continued structural reforms to boost productivity and sustain employment are also a priority to achieve fiscal sustainability and improve well-being. Growth has picked up and intensified labour shortages The rebound in international trade since mid-2016 has boosted exports and business investment.
3 The upturn has also been driven by a surge in the number of international visitors, which nearly tripled from 10 million in 2013 to 29 million in 2017, and by preparations to host the 2019 Rugby World Cup and the 2020 Olympic and Paralympic Games. A series of supplementary budgets have also supported growth. With the working-age population (15-64) declining at an annual rate of since 2013, labour shortages are becoming more severe. The unemployment rate has fallen JAPAN Real wages have declined The primary budget deficit is likely to continue under current policies . Index 2014 = 100 %. 103 103 1 Nominal wages Baseline (2% annual growth rate).
4 Real wages High growth (more than 3% annual growth rate). 102 102. 0 101 101. 1 100 100. 2 99 99 3 98 98 2014 2015 2016 2017 2015 2017 2019 2021 2023 2025 2027. 1. Seasonally-adjusted data (three-month moving average) based on establishments with 30 or more workers. 2. Deflated by the consumer price index, excluding rent. 3. Government projections in January 2018. It assumes that the hike in the consumption tax rate from 8% to 10% is implemented as planned in 2019. The primary balance is central and local governments, as a percentage of GDP on a fiscal year basis. Source: Ministry of Health, Labour and Welfare; and Cabinet Office. 1 2 OECD ECONOMIC OUTLOOK, VOLUME 2018 ISSUE 1 PRELIMINARY VERSION OECD 2018 175.
5 3. DEVELOPMENTS IN INDIVIDUAL OECD AND SELECTED NON-MEMBER ECONOMIES. JAPAN : Demand, output and prices 2014 2015 2016 2017 2018 2019. Current Percentage changes, volume prices YEN. (2011 prices). trillion GDP at market prices Private consumption Government consumption Gross fixed capital formation Final domestic demand Stockbuilding1 - Total domestic demand Exports of goods and services Imports of goods and services Net exports1 - Memorandum items GDP deflator _ Consumer price index2 _ Core consumer price index3 _ Unemployment rate (% of labour force) _ Household saving ratio, net (% of disposable income) _ General government financial balance (% of GDP) _ General government gross debt (% of GDP) _ Current account balance (% of GDP) _ 1.
6 Contributions to changes in real GDP, actual amount in the first column. 2. Calculated as the sum of the seasonally adjusted quarterly indices for each year. 3. Consumer price index excluding food and energy. Source: OECD Economic Outlook 103 database. 1 2 JAPAN Labour market conditions Consumer price inflation remains have tightened below the 2% target . % of labour force Ratio Y o y % changes 2 2. Headline inflation Core inflation . 1 1. 0 0. 1 1. Unemployment rate Job offer to applicant ratio . Job offer to applicant ratio (regular workers) . 2 2. 2013 2015 2017 2013 2015 2017 2019. 1. Excluding the effects of the April 2014 consumption tax hike, which added 2 percentage points to inflation in FY 2014 according to a government estimate.
7 It also excludes the scheduled October 2019 consumption tax hike, which would add percentage points to inflation in the fourth quarter of 2019, according to an OECD estimate. 2. OECD measure, which excludes food and energy. Source: OECD Economic Outlook 103 database; and Ministry of Health, Labour and Welfare. 1 2 176 OECD ECONOMIC OUTLOOK, VOLUME 2018 ISSUE 1 PRELIMINARY VERSION OECD 2018. 3. DEVELOPMENTS IN INDIVIDUAL OECD AND SELECTED NON-MEMBER ECONOMIES. to about 2 per cent, while the ratio of job openings to applicants has risen to its highest level since 1974. A number of firms are cutting back services and operating hours to cope with labour shortages.
8 Despite tight labour market conditions, wage growth remains sluggish and began falling in real terms in the second half of 2017 as headline inflation, led by rising food and energy prices, picked up. Nevertheless, private consumption has rebounded, reaching its highest level since 2013. The contraction in output in the first quarter of 2018 was a temporary correction, followed by a resumption of growth. Structural reforms and fiscal consolidation are priorities JAPAN 's shrinking and ageing population makes it important to further remove obstacles to the labour force participation of women, whose employment rate is still 16. percentage points below that of men in JAPAN .
9 There are also wide gender gaps in job quality. In JAPAN 's dual labour market, about two-thirds of the relatively low-paid non-regular employees are women, contributing to the gender wage gap, which is the third highest in the OECD. Raising the female employment rate requires improving work-life balance and encouraging a shift to flexible employment and wage systems based on ability rather than seniority. The New Economic Policy Package, launched at end-2017, will help by further expanding childcare capacity and introducing free childcare for children between the ages of 3 and 5. It also aims to double labour productivity growth to 2% by 2020 through a range of measures, including corporate governance reforms, financial support for investment in ICT by SMEs and tax incentives for wage and investment increases.
10 In addition, the package will increase flexibility in regulation to facilitate the creation of innovative start-ups. JAPAN 's gross government debt has risen to 224% of GDP. With a primary deficit (central and local governments) of more than 3% of GDP in 2017, the official target of a primary surplus by FY 2020 is out of reach. The failure to reach the targ et reflects lower-than-expected output growth, the postponement of the second consumption tax hike (from 8% to 10%), originally planned for 2015, to 2019, and the decision to use half of the revenue from the hike for additional spending. The government will announce a new fiscal strategy around mid-2018 that includes a target date for a primary surplus.