Japan Economic Forecast

By: EW World Economy Team   Date: 4 June 2013

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EW World Economy Team

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The Japanese economy has undergone difficult times in recent years, though a recent government stimulus package appears to be reinvigorating the economy. In 2008 and 2009, the economy shrank by 1.042 percent and 5.527 percent respectively – as a result of the global financial crisis – whereas it shrank by 0.569 percent in 2011 due to the tsunami disaster.

However in 2012, Japan posted a GDP growth rate (constant prices, national currency) of 1.996 percent – one of the fastest growing economies among the G-7 nations for the year. In 2013, GDP growth is expected to reach 1.584 percent or higher, with a new economic strategy – labelled Abenomics after Prime Minister Shinzo Abe – set to encourage private investment and end persistent deflation.

But while Abenomics is likely to revive and boost the economy in the near future, it fails to address significant long-term economic challenges: A huge government debt (the highest debt to GDP ratio in the world), a shrinking and aging population and weak consumption are problems that continues to weigh heavily on the economy; while India has already overtaken Japan as the world’s third largest economy by GDP (PPP) last year – with growth rates for Japan not expected to be higher than 1.216 percent from 2015 to 2018.

Japan’s GDP Forecast

Japan was the 3rd largest economy in the world for 2012, by GDP (current prices, US dollars) and the 4th largest by GDP (PPP). In 2012, Japan's GDP (current prices, US dollars) was US$5.963 trillion and its GDP (PPP) was US$4.628 trillion.

The size of the economy – GDP (PPP) – is expected to increase by 3.25 percent to US4.779 trillion in 2013. After which, it will experience steady but modest increases of between 3.09 percent and 3.43 percent to reach US$5.619 trillion in 2018.

Similarly, Japan’s GDP (PPP) per capita is also expected to increase annually by fairly consistent margins. In 2012, Japan had the 24th highest GDP (PPP) per capita in the world at US$36,265.75. By 2013, Japan’s GDP (PPP) will increase by 3.47 percent to reach US$37,525.38; and from 2014 to 2018, Japan’s GDP (PPP) per capita will see annual increases ranging from 3.35 percent to 3.71 percent. By the end of 2018, Japan will have the 21st highest GDP (PPP) per capita in the world at US$44,803.82.

Japan’s Unemployment Forecast

Japan had the lowest unemployment rate among the G7 nations in 2012 at 4.35 percent. Prior to the 2008 financial crisis, Japan’s average unemployment rate from 2004 to 2008 was 4.215 percent. Although the financial crisis caused a slight increase in unemployment (peaking at 5.05 percent in 2009), the unemployment figure has begun to drop again and will continue to do so over the next few years. By the end of 2018, unemployment in Japan is expected to drop to 3.994 percent.

However many analysts believe that the reason for the drop could be a matter of a shrinking labour force rather than new job creation. Japan’s aging labour force means that more people are dropping out of the labour force every year. Statistics from the Japanese Statistics Bureau show that Japan's labour force has been on a continuous decline since recording a historical high of 67.93 million people in 1998. It showed growth from 2005 due to the increased labour force participation rate of, mainly, the elderly.

But since then, the figure has started declining again. The number of workers in Japan is declining by -0.6 percent per annum through the present decade, and this decline will accelerate slightly to -0.8 percent through the 2020s. As of right now, technological innovation has been able to limit significant harm to the economy:  GDP per worker productivity has risen 14.4 percent since 1998.

Japan’s Inflation Rate & Current Account Balance Forecast

Japan has been struggling to combat deflation for more than a decade. From 1999 to 2012, there were only three years in which Japan did not experience deflation. Even then, inflation (average consumer price change) was minimal - 0.243 percent for 2006, 0.061 percent for 2007 and 1.378 percent in 2008.

With Abenomics, the Japanese government has set a 2 percent inflation target for the next few years. In 2013, the IMF predicts that inflation will only reach just 0.062 percent, but it believes that Japan will be able to meet its target from 2014 onwards through to 2018. In 2014, inflation (average consumer price change) is expected to reach 2.967 percent. From 2015 to 2018, the average inflation rate will be 2.05 percent.

Japan had the world's second largest current account balance surplus in 2010 at US$204.301 billion. However, this figure shrank by 41.5 percent in 2011 to US$119.304 billion due to weakened exports as well as a surge in energy imports after the nuclear meltdown. In 2012, the current account surplus dropped once more by 50.6 percent to US$58.963 billion – making it the 9th largest in the world. Forecasts predict that Japan’s current account surplus will see a gradual recovery starting from 2013 and reach US$102.919 billion in 2018.

Read more about Japan's economy, including industry information, featured analysis and trade statistics below.

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