Japan's economy eyes recovery in 2025 amid positive inflation: Report

Japan’s economy is showing signs of recovery following a sharp downturn in Q1 2024, with a positive growth trajectory expected in 2025, according to the ASEAN+3 Macroeconomic Research Office (AMRO). Despite inflation remaining above the 2 per cent target for an extended period, a rebound in exports, consumption, and strong wage growth are anticipated to drive growth next year.

AMRO forecasts a modest 0.1 per cent growth for 2024, followed by a 1.3 per cent increase in 2025. The country’s inflation, driven by yen depreciation, wage hikes, and the winding down of energy subsidies, peaked at 2.4 per cent in September 2024. However, inflation is expected to moderate slightly to 2.2 per cent in 2025, as energy costs ease.

Japan’s external position remains strong, with the current account surplus projected at 4.2 per cent of GDP in 2024 and 4.1 per cent of GDP in 2025, supported by robust exports and primary income surpluses. In 2023, the current account posted a surplus of 3.6 per cent of GDP, while in the first three quarters of 2024, the surplus rose to 5.0 per cent of GDP.

The Japanese government faces challenges in managing fiscal sustainability, with the fiscal deficit projected to widen to 3.2 per cent of GDP in FY2024, up from 2.9 per cent in FY2023. The AMRO report highlights that Japan’s high public debt, and an aging population require stronger fiscal consolidation efforts. Policy recommendations include continued gradual interest rate hikes by the Bank of Japan and enhanced fiscal planning to address long-term structural challenges.

The AMRO team emphasised the importance of well-calibrated policies and structural reforms to navigate Japan’s transition to a higher inflation environment and ensure sustainable growth in the coming years.

Fibre2Fashion News Desk (HU)