The Organization for Economic Cooperation and Development (OECD) projected Wednesday Japan's economy to grow 0.7 percent in 2010 after it saw a contraction 6.8 percent this year.
The OECD said in its Economic Outlook report the sharp recession triggered by the global crisis may be "the most severe in Japan's post-war history."
But recovery in exports against the backdrop of a faster-than-expected rebound in world trade as well as some weakening of the yen against other major currencies "would result in stronger-than-projected export and output growth in Japan," it said.
The government's series of fiscal stimulus measures, the equivalent of 4 percent of the country's GDP, is likely to lift output growth into positive territory from the second half of this year. But the growth rate will remain below 1 percent through next year, the OECD warned.
Although the stimulus is important, the government also needs to focus on fiscal consolidation, given the large budget deficit and high public debt ratio, the organization said, adding that reforms in taxation and social security systems are a key to that end.
The report also said the OECD economies as a whole will shrink 4.1 percent this year but grow 0.7 percent next year.