Central banks should use the leeway provided by moderating inflation and easing labour market to cut policy rates. The timing and scope of policy rate reductions will need to remain data-dependent and be carefully judged to ensure that underlying inflationary pressures are durably contained. In Japan, by contrast, further mild increases in policy rates are called for.

Governments face significant fiscal challenges from higher debt and the sizeable additional spending pressures arising from multiple sources: ageing populations, climate change mitigation and adaptation measures plans to raise defense spending, and the need to finance new reforms). Stronger near-term efforts to contain spending growth and enhance revenues are needed to ensure debt sustainability and rebuild fiscal buffers.

Improving competition-enhancing reforms could significantly raise GDP per capita and enhance living standards over the long term. The OECD’s Product Market Regulation indicators (PMRs) measure how well countries’ regulations foster competition, both across the whole economy and in specific sectors, clearly highlighting the urgency for pro-competition reforms across both OECD member and selected non-member economies.