QNB lists 3 factors that will likely subdue Japan's GDP growth this year

Qatar National Bank (QNB) said Saturday it expects Japan's real GDP to remain relatively unchanged this year amidst difficult conditions characterized by stagnant consumption, weak external demand, and declining investment.In its weekly report, QNB referred to the positive outlook for Japans economy at the end of last year, which indicated notable confidence in Japan despite a less favorable external context, particularly the global economic slowdown, which has become an obstacle for Japan, the world's third-largest economy after the United States and China.Bloomberg's forecasts showed Japan's real economic growth at 0.95% for 2024, a figure that is encouragingly higher than the annual average of 0.75% since 2000. The bank noted however that this initial optimism began to fade with the shift in sentiment following the earthquake that struck the country on New Year's Day, along with signs of economic decline in key indicators. In the second quarter of 2024, Japan's real GDP was only 0.1% higher than its pre-pandemic peak in the third quarter of 2019, implying that the economy has made minimal progress over the past five years. By September, growth forecasts for this year had fallen to just 0.05%.QNB attributed this significant shift in Japan's growth outlook to three main factors. The first is the continued stagnation in consumption, which remains a major obstacle to economic growth. Consumption accounts for nearly 60% of Japan's economy, making it a key determinant of its performance.According to the report, despite a strong recovery post-COVID-19, consumption has been declining year-over-year since December of last year. Additionally, average consumption this year is 4.5% lower than the pre-pandemic average during 2018-2019, and 0.4% lower than the level recorded in 2023. The primary reason for the weak consumption growth is high inflation, which has eroded the purchasing power of wages, affecting household spending. In July, inflation-adjusted worker incomes grew by 0.4% year-over-year, but this represents only a slight improvement after a long period of negative growth, with real wages still 2% lower than their peak in 2022. The report also pointed out the issue of an aging population, which exacerbates the negative factors affecting consumption. Older Japanese consumers tend to be more conservative in their spending compared to younger generations, prioritizing saving due to their reliance on pension income, with most of their expenses going toward necessities like healthcare. Given the importance of consumption, these negative trends are affecting Japans economic performance.The second factor identified by QNB was the decline in external demand, which has weakened its support for Japan's economy, as the country is deeply integrated with the global economy. The ongoing accumulation of protectionist policies and trade barriers worldwide amid rising geopolitical tensions is a contributing factor. Additionally, with the end of the COVID-19 pandemic, consumption patterns have shifted back toward services and away from goods, leading to a continued stagnation in global manufacturing. In this context, global trade growth is expected to reach only 2-3% this year, about half the average rate during the 2000-2022 period. These trade forecasts increase pessimism about Japans economy, where exports account for 20% of GDP and are a key driver of industrial production.The third factor discussed in the report was the decline in investment, which is hindering Japan's GDP growth. Companies remain cautious about committing to capital spending amid global economic and geopolitical uncertainties, as well as weak domestic demand. Alongside weak consumer spending, Japans aging population and labor shortages further limit the potential for high investment returns, weakening overall economic expansion. Investment levels fell by 0.4% in the first quarter of 2024 compared to the same period last year. Since investment represents 25% of Japans economy, disappointing capital expenditure is restraining the pace of economic growth.