Japan projection note OECD Economic Outlook November 2023

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Japan Real GDP growth is projected at 1.0% in 2024 and 1.2% in 2025, mainly driven by domestic demand. Private consumption will be supported by pent-up demand, stronger wage growth and the new economic package. Government subsidies for green and digital investment and high corporate profits will boost business investment, despite higher uncertainty. Headline inflation is projected to moderate but remain around 2% as wage growth gains momentum in 2024-25. Record high gross government debt, at 246% of GDP in 2022, calls for a detailed and credible medium-term fiscal consolidation strategy, with further gradual increases in the consumption tax rate and measures to control spending. Structural reforms to boost employment and productivity are also key to put the public finances back on a sustainable trajectory and address demographic headwinds. Continued flexibility in the conduct of yield curve control and a gradual modest increase in the short-term policy interest rate are warranted, based on OECD projections of sustained inflation and wage growth. Domestic demand has slowed Following robust growth in the first half of 2023, real GDP contracted by 0.5% in the third quarter. High uncertainty and inflation weighed on private consumption and investment. Headline consumer price inflation stood at 3.3% in October, reflecting decreasing energy prices and the extension of government energy subsidies. Corporate short-term inflation expectations fell slightly to 2.5% for the near term and 2.2% for three years ahead. Nominal wages have been trending up and are expected to gain momentum as the strong result of the Shunto wage negotiations (3.6% wage growth) spreads to SMEs.

Japan 1

1. Nominal wages are total cash earnings per employee. Real wages are nominal wages deflated by the consumer price index excluding imputed rent. Source: OECD Economic Outlook 114 database; Ministry of Internal Affairs and Communications; and OECD calculations. StatLink 2 https://stat.link/r4816y

OECD ECONOMIC OUTLOOK, VOLUME 2023 ISSUE 2: PRELIMINARY VERSION © OECD 2023


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