Japan's Economic Outlook for Fiscal Years 2024 and 2025 (May 2024)

Economic Research Department Executive Research Fellow Taro Saito

■Summary

<Real growth rate: 0.8% in FY2024 and 1.1% in FY2025>

Real GDP in the January–March quarter of 2024 contracted at an annualized rate of -2.0% from the previous quarter. This decline was due to reduced consumption, capital investment, and exports following the suspension of production and shipments in the wake of the automobile cheating scandal, amid ongoing downward pressure from inflation.
Real GDP is expected to grow at an annualized rate of 2.3% from the previous quarter in the April–June quarter of 2024, primarily due to the recovery in automobile production. It is then projected to grow at a high annualized rate of 3.0% in the July–September quarter, mainly due to private consumption, as the effects of income and inhabitant tax cuts become apparent.
Real GDP growth is forecast to be 0.8% in FY2024 and 1.1% in FY2025. The high growth in the first half of FY2024 is expected to be temporary. However, in the second half of FY2024, as real wage growth turns positive due to slower price growth, the economy will shift to domestic demand–led growth, driven mainly by private consumption and capital investment.
Consumer prices (total excluding fresh food) are forecast to rise by 2.5% in FY2024 and 1.8% in FY2025. The rate of increase in goods prices will rise temporarily due to the recent depreciation of the yen and the end of government’s measures to ease the burden of electricity and city gas bills but will then gradually slow, reflecting the ongoing appreciation of the yen. Conversely, the rate of increase in service prices is likely to rise further, given that the rate of increase in wages is the highest in 33 years.

■Index

1．Ngative growth of -2.0% on an annualized basis from the previous quarter in the January–March quarter of 2024
　　・Exports to pick up moderately
　　・The impact of the re-accelerating weak yen and persistently high oil prices
　　・The rate of increase in wages in the 2024 spring wage negotiations will reach 5% for
　　　the first time in 33 years
2．Real growth rate forecast to be 0.8% in FY2024 and 1.1% in FY2025
　　・Positive growth in April–June quarter of 2024 due to recovery production of
　　　automobiles and so on.
　　・Personal consumption dependent on disposable income
　　・Businesses have a strong appetite for capital investment
　　・Outlook for prices