Japan Lowers This Year's Growth Forecast to 0.9%: Concerns Over Weaker Domestic Demand Amid Rising Oil Prices

Growth Forecast Cut by 0.4 Percentage Points from 1.3%
Takaichi Cabinet Struggles Amid Declining Approval Ratings

AFP Yonhap News

The Japanese government has revised down its real gross domestic product (GDP) growth forecast for this year, reflecting the impact of rising oil prices due to escalating tensions in the Middle East.

The Cabinet Office announced on the 30th during the Council on Economic and Fiscal Policy meeting that it has lowered its real GDP growth outlook for fiscal year 2026 by 0.4 percentage points, from the previous 1.3% to 0.9%. The real growth forecast for next year was set at 1.1%.

The assumed oil price was raised from the previous 68 dollars per barrel to 92.5 dollars per barrel. The government projected that the rising oil prices caused by instability in the Middle East will dampen domestic demand. Private consumption, which accounts for more than half of GDP, is expected to increase by 0.9%. Although this growth is slower than last year's 1.3%, a moderate pace of recovery is anticipated. Facility investment is expected to grow by 2.3%, maintaining a high rate of increase. The nominal GDP growth forecast was presented at 3.0%.

The average private-sector forecast for real growth is 0.7% for this year and 0.9% for next year, with the government forecasts standing 0.2 percentage points higher in both cases.

Bloomberg News pointed out that the worsening economic outlook is adding to the burden on Japanese Prime Minister Sanae Takaichi, who is already facing declining approval ratings. As wage growth fails to keep up with inflation, public dissatisfaction has been rising, and Prime Minister Takaichi is criticized for focusing more on her cherished policies and long-term objectives rather than addressing the cost of living burden.

In contrast to the government’s downward revision, the Bank of Japan is increasingly optimistic about the country’s economic prospects. According to officials, the Bank of Japan is expected to discuss a possible upward revision of this year’s growth forecast, currently at 0.5%, at its monetary policy meeting this week, reflecting solid exports and global demand related to artificial intelligence supporting the economy.

This content was produced with the assistance of AI translation services.