Japan's Economic Outlook for Fiscal Years 2023 to 2025 (November 2023)

Economic Research Department Executive Research Fellow Taro Saito

■Summary

<Real growth rate: FY 2023: 1.4%, FY 2024: 1.3%, FY 2025: 1.1%>

In the July–September quarter of 2023, Japan’s real GDP experienced negative growth for the first time in three quarters, contracting 2.1% on an annualized basis from the previous quarter. This decline was attributed to reductions in private consumption, private residential investment, and the fixed investment of businesses. A decrease in foreign demand exerted additional downward pressure on growth.
Projections indicate that real GDP growth will reach 1.4% in FY 2023, followed by a slight moderation to 1.3% in FY 2024 and a further decline to 1.1% in FY 2025. Exports are not expected to be the primary engine for economic expansion in the foreseeable future. By contrast, private consumption, business fixed investment, and other domestic demand factors are likely to remain robust. The economy is expected to sustain its recovery momentum, albeit in the face of substantial risk in domestic and foreign demand.
Nominal GDP continues to outpace real GDP growth, with the forecast for FY 2023 suggesting nominal GDP growth at 5.4%, the most substantial increase in 33 years. The estimated nominal GDP is set to surpass 600 trillion yen in FY 2024.
Consumer prices (excluding fresh food) are expected to increase by 2.8% in FY 2023, with a moderation in that level to 2.0% in FY 2024 and a further decline to 1.4% in FY 2025. The anticipated slowdown in the rate of increase in goods prices is attributed to an appreciation of the yen amidst a diminishing interest rate differential between Japan and the U.S. Nevertheless, service prices are expected to remain elevated as companies continue to pass on increased labor costs from wage hikes in the form of price hikes.

■Index

1．Economic Performance in the July–September Quarter of 2023
　　・Global Economic Trends and Projections
　　・Limitations of Economic Stimulus Measures
　　・Wage Growth and Economic Implications
2．Projection of Real GDP Growth
　　・Continued Emphasis on Domestic Demand
　　・Future Growth Patterns
　　・Shifts in Demand and Inbound Tourism
　　・Price Outlook and Consumer Inflation