Japan’s economy is likely to fall behind India’s in 2026 to fifth place in the world, according to an International Monetary Fund’s estimate, potentially diminishing the East Asian nation’s presence on the global stage.
The subdued economic outlook makes Prime Minister Sanae Takaichi’s planned growth strategy, due out in the summer, all the more important to combat the burden from the country’s shrinking population, economists say. They call for productivity improvements and further efforts to tap into promising growth fields.
Japan’s economy shrank for the first time in six quarters in the July-September period, due partly to weak exports amid higher US tariffs imposed by President Donald Trump, according to government data.
Economists expect the Japanese economy to return to a moderate recovery path in 2026, with uncertainty over US trade policy easing following a bilateral deal.
Corporate profits are expected to remain resilient, providing impetus for capital spending and sustained wage increases – both major components of gross domestic product.
The Organisation for Economic Cooperation and Development said that Japan’s economy is projected to grow 0.9 per cent this year, helped by expansionary financial policy under Takaichi and private consumption growth supported by real disposable income gains.
