Japan’s Economic Growth Stalls in 2024 Despite Q4 Rebound
Introduction
Japan’s economy experienced a significant slowdown in 2024, with the country’s Gross Domestic Product (GDP) nearly stagnating amidst global economic uncertainties. Despite a stronger-than-expected rebound in the fourth quarter, the overall economic growth for the year remained subdued.
GDP Growth Estimates
According to official government estimates released in January 2025, Japan’s GDP grew by a mere 0.1% in 2024 in real terms, which accounts for inflation. This marked a sharp decline from the 1.5% growth recorded in 2023. In the fourth quarter alone, Japan’s economy expanded by 0.7%, a noticeable acceleration from the 0.4% growth in the third quarter and considerably higher than the 0.3% growth forecast by economists.
Factors Driving Growth
Marcel Thieliant, an analyst at Capital Economics, attributed the modest growth primarily to a "significant gain" in net exports, which resulted from a moderate increase in exports and a sharp decline in imports. However, the increase in output during the last quarter was not widespread. Personal consumption edged up by 0.1% on a quarterly basis, while government spending remained flat.
Prior to the release of the estimates, experts at Daiwa Research Institute highlighted the full recovery of automobile production after disruptions in the spring and increased capital expenditure by businesses. They also noted a return in consumer spending as inflation eased.
Consumption Rebound and Government Stimulus
After contracting for four consecutive months due to persistent inflation, Japanese consumer spending rebounded in December. Household spending surged by 2.7% year-over-year, significantly exceeding market expectations of a 0.5% increase. This late surge was fueled by an adjustment in average wages to account for inflation and year-end bonuses paid to employees.
In December 2024, the government of Prime Minister Shigeru Ishiba, who took office in October, approved a stimulus package worth 136 billion euros. The package includes tax cuts, subsidies, and grants aimed at boosting purchasing power and encouraging consumption.
Inflation and Monetary Policy
Despite the rebound in consumption, concerns remain about the impact of high inflation on economic growth. Japan’s core consumer inflation (excluding fresh food) accelerated to 3% in December, following a 2.7% increase in the previous month. This remains well above the Bank of Japan’s (BoJ) target of around 2%. The elevated inflation could prompt the BoJ to raise interest rates further.
Global Economic Headwinds
Japan’s economic slowdown is partly attributed to global economic headwinds, including the ongoing war in Ukraine, supply chain disruptions, and rising energy prices. These factors have dampened global demand and impacted Japan’s export-oriented economy.
Conclusion
Japan’s economy faced significant challenges in 2024, with near-stagnation in GDP growth amidst persistent inflation. Despite a rebound in the fourth quarter, the overall economic outlook remains uncertain due to global economic headwinds. The government’s stimulus package and the BoJ’s monetary policy decisions will be crucial in shaping Japan’s economic trajectory in the coming months.
