GDP Growth: Measures Must be Devised to Prevent Economic Downturn

Editorial

16:18 JST, May 23, 2026

Although the Japanese economy demonstrated solid growth through this spring, uncertainty over the future is intensifying due to the turmoil surrounding Iran.

The government should formulate measures to strengthen the economy over the medium to long term, while simultaneously exerting efforts to implement necessary policies to prevent the economy from faltering.

The preliminary figures for real gross domestic product for the January-March period of 2026 grew by an annualized 2.1% from the previous quarter. This marks the second consecutive quarter of positive growth, exceeding market expectations.

The primary driver was a sharp 1.7% increase in overall exports, fueled by a recovery in automobile exports, which had previously slumped due to the impact of tariffs implemented by the administration of U.S. President Donald Trump.

There are signs that weakness in private consumption, which has been a persistent challenge amid prolonged high prices, can be overcome. Private consumption, which accounts for more than half of the country’s GDP, rose by 0.3%, marking the fifth consecutive quarter of positive growth.

This growth is likely due to real wages turning positive, as high wage increases continued while inflation began showing signs of cooling down.

Looking at fiscal 2025 as a whole, real GDP reached about ¥590 trillion, growing for the second consecutive year. Nominal GDP, which reflects price changes, rose by 4.2% to about ¥670 trillion, hitting a record high.

The challenge moving forward will be how to sustain this economic recovery in the face of headwinds from the Middle East crisis.

Crude oil imports have stalled due to the blockade of the Strait of Hormuz, and anxiety remains unabated over the supply of naphtha, or crude gasoline, a raw material for a wide variety of products.

There are concerns that supply chain disruptions will weigh on corporate earnings, and that a rush of price hikes will dampen consumer spending. Some private-sector analysts project that growth could plummet to near-zero in the April-June quarter.

First and foremost, it is crucial that the government exerts every effort to diversify its procurement sources for crude oil and naphtha. To ensure stable economic growth, it will be essential to compile a supplementary budget that takes fiscal discipline into account, and to curb sudden surges in long-term bond yields as well as excessive depreciation of the yen.

At the same time, measures to strengthen mid- to long-term investments should be considered. The administration of Prime Minister Sanae Takaichi has been advocating for concentrated public and private investment in 17 strategic fields, including artificial intelligence and semiconductors.

To overcome the vulnerability of the economy’s dependence on crude oil from the Middle East, it is necessary to reconsider strategies.

There should be many areas on which focus has to be placed such as measures to promote the use of next-generation technologies, including small modular reactors and electric vehicles equipped with autonomous driving functions.

To enhance economic security, it will also be crucial to deepen cooperation with other Group of Seven nations to ensure the stable procurement of rare earth elements, which are indispensable for products essential for decarbonization.

(From The Yomiuri Shimbun, May 23, 2026)