As Japan gov’t cuts GDP growth outlook to just 0.9%, India likely to overtake by 2026
India is already the third largest economy in terms of Purchasing Power Parity, the true indicator of World Economic standings.
However even when GDP is calculated in US Dollar terms, Japan’s economic growth for the current business year to next March will likely be just 0.9 percent, revised downward from the initially estimated 1.3 percent, as inflation hurts private consumption and the auto industry is hit by safety test scandals, the government said Friday. With this kind of growth against 7% of India, by 2026 Japan is going to lose its place as third largest economy to India which presently is at 5th position.
In its mid year report, the Cabinet Office more than halved its outlook for private consumption, accounting for over half of the economy, to a 0.5 percent increase from the 1.2 percent forecast in January.
The downward revisions underscore the challenges the economy faces in ensuring steady growth at a time when inflation is hurting domestic demand. Auto production and shipments have been hit by a series of revelations that Japanese automakers used improper data for vehicle certification.
The latest forecasts are still more upbeat than the average estimate of a 0.44 percent increase in real gross domestic product in a survey of economists by the Japan Center for Economic Research.
Wage growth has yet to keep pace with inflation, with a sharp drop in the yen raising import costs, prompting calls by private-sector members who sit on an advisory panel to the prime minister to mitigate the pain felt by households.
“The impact of the weaker yen and rising prices on the purchasing power of households cannot be overlooked. It is necessary to prevent households from turning defensive (in their spending),” the members said in their proposal to the Council on Economic and Fiscal Policy.
“It is important for the government and the Bank of Japan to manage their policies by carefully monitoring the yen’s recent movements,” they said, adding that priority should go to boosting household incomes and supporting consumption.
The government has decided to retain subsidies to lower gasoline and kerosene prices until the end of this year while temporarily reviving a program to curb utility bills for households to cope with the summer heat.
Prime Minister Fumio Kishida takes the view that Japan has a golden opportunity to finally break free from deflation, or continuous price falls that have plagued Japan for years. To achieve the goal, he has stressed the need for robust wage growth.
Consumer prices, a key gauge of inflation, are forecast to rise 2.8 percent in fiscal 2024, compared with an earlier expected 2.5 percent increase.
The updated forecasts are based on the assumption that the U.S. dollar will average around 159 yen for fiscal 2024. After market talk of yen-buying interventions by Japanese authorities, the dollar was trading in the 157 yen zone on Friday.
The government left its growth outlook unchanged for nominal GDP at 3.0 percent for fiscal 2024.
