Japan’s economy will slow significantly this year after last month’s earthquake and tsunami, according to the latest forecast from the Organisation for Economic Cooperation and Development.
The OECD says the Tokyo government will need to cut spending from other programmes to rebuild the country’s battered northeast coast and to ensure faster growth next year.
Gross domestic product will expand 0.8 percent this year, the OECD said, down sharply from the 1.7 percent growth previously forecast.
The economy will then expand 2.3 percent in 2012, faster than a previous estimate for 1.3 percent growth, as reconstruction spending gains pace, the OECD said.
Expenditure to rebuild infrastructure is unavoidable, but the government still needs to show fiscal discipline and eventually needs to raise the country’s sales tax to 20 percent from five percent currently, according to the OECD report.