Contributions of External Demand to Growth
External demand is expected to play a significant role in driving overall growth, contributing 1.4 percentage points to Japan’s economic expansion. The recovery in inbound tourism and automobile output has been instrumental in bolstering external demand, particularly after the auto manufacturing sector was adversely affected by the global chip shortages.
Projections for Next Fiscal Year
The government’s economic growth projection for the following fiscal year starting in April is estimated to be 1.3%, indicating a slight slowdown in growth momentum. This decline is primarily attributed to the anticipated weakening of external demand as domestic consumption rebounds. However, it is worth highlighting that the revised projection of 1.3% for fiscal 2024 remains slightly higher than the previous estimation of 1.2%.
Factors Driving Domestic Demand
A Cabinet Office official anticipates that domestic demand will recover in the next fiscal year due to various factors. Apart from the ongoing trend of wage hikes, the government plans to implement income tax cuts, which are expected to stimulate consumer spending and bolster overall economic growth.
The government’s projections have proven to be more optimistic than those of private-sector economists. Private economists predict a growth rate of 1.5% for the current fiscal year and 0.9% for the following year, indicating a more cautious outlook for the world’s third-largest economy.
Implications for Government Policy
These growth projections serve as the foundation for shaping government policy, including the formulation of the annual budget for the upcoming fiscal year. As such, they play a vital role in guiding economic strategies and decision-making processes.
Additionally, consumer price inflation is forecasted to rise by 3.0% during this fiscal year. This figure takes into account energy subsidies, which have a dampening effect of 0.6 percentage points on overall inflation.