Drop in Domestic Demand Impacted Japan’s GDP Report; Some Expect Jan.-March Quarter to be Negative Again

The Yomiuri Shimbun

2:00 JST, February 17, 2024 

Amid waves of price hikes and inflation, people have been forced to tighten their purse strings even tighter.

“I try to save money by buying food and daily necessities in bulk or buying the ones that are on sale,” said a 58-year-old female company employee.

The gross domestic product quarterly report for October-December released Thursday showed negative growth for the second consecutive quarter for the first time in five years, falling short of market expectations of positive growth.

The GDP growth often switches between positive and negative figures after preliminary reports have been revised. However, if the GDP growth is confirmed to be negative for two consecutive quarters, the market would automatically considered that the economy has entered a recession.

The decline in domestic demand is particularly problematic with a 0.2% drop in private consumption, which accounts for more than 50% of the GDP, a 0.1% drop in private non-residential investments and a 1.0% drop in private residential investments. In addition to a decrease in food purchases, revenge spending following the pandemic did not seem to be occurring.

Regarding the January-March GDP, some anticipate negative growth, partly due to the Noto Peninsula Earthquake and the suspension of shipments by major automakers.

To increase spending, it is essential that wages grow at a faster pace than price hikes.

The 2024 shunto spring wage negotiations have begun with labor unions affiliated with the Confederation of Japan Automobile Workers’ Unions and Japanese Electronic and Information Union submitting their demands for higher wages.

The focus will be on whether wage hikes will be extended to small and midsize businesses, not just large companies.

“Momentum is building for small and very small businesses to raise wages as well,” Ken Kobayashi, Chairman of the Japan Chamber of Commerce and Industry, which includes members from small and midsize businesses, said at a press conference on Thursday.