The gross domestic product of Japan grew by 1.9% in 2023, but The Asian archipelago was surpassed by Germany as the third world economy due to the strong devaluation of the yenofficial data published on Thursday showed.
Destined decades ago to become the world’s leading economy, Japan is displaced to fourth place and threatened by the rapid growth of the new most populous nation in the world, India.
The change in positions is due more to currency fluctuation than to the performance of each economy: Japan grew 1.9% in 2023, while Germany contracted 0.3%, according to data published in January.
But the sharp deterioration of the yen, of more than 18% against the dollar in the last two years, caused its nominal GDP to stand at 4.2 trillion dollars, below Germany’s 4.5 trillion.
This fall in the Japanese currency is due to the decision of its central bank to maintain negative interest rates to boost prices, while other countries increased rates to combat inflation.
“The advance (…) in dollars is largely due to the recent collapse of the yen. Japan’s real GDP has exceeded that of Germany since 2019,” Brian Coulton, an economist at Fitch Ratings, told AFP.
An export power like Japan, Germany suffers from weak foreign demand, the increase in the energy bill for its industry and the high interest rates imposed by the European Central Bank to curb inflation.
Japan also relies heavily on its foreign trade, especially car exports, although the weak yen has made its products cheaper abroad and helped firms such as Toyota in difficult markets such as China.
But it is suffering more than Germany from labor shortages and demographic decline, leading experts to think the gap between the two economies will widen.
In fact, the Japanese economy contracted again in the last quarter of 2023 by 0.1%, although the expectation of Bloomberg analysts was a growth of 0.2%.
This decline, added to the sharpest drop of 0.8% recorded between July and September, causes the Asian archipelago to enter a technical recession.
In the last three months of 2023, household consumption fell by 0.2% and non-residential investments by private companies fell by 0.1%.
During its economic boom of the 1970s and 1980s, some projected that Japan would overtake the United States as the world’s largest economy.
But bursting of its financial and real estate bubble in the early 1990s led to several “lost decades” of economic stagnation and deflation.
In 2010, the archipelago was already overtaken by China, whose economy is now four times larger than Japan’s.
And according to the forecasts of the International Monetary Fund (IMF), the size of the Indian economy, although lower in GDP per capita, will surpass Japan in 2026 and Germany in 2027.
Germany and Japan “reduce their contribution to global growth in favor of others with faster growth (…) because their productivity is already very high and it is very difficult to increase it,” explained Alicia García Herrero, economist at the firm Natixis.
But both “can take steps to mitigate this. The most obvious is to allow more immigration or increase the fertility rate,” he added.
Although mainly due to the deterioration of the yen, falling behind Germany is a blow to Japan’s self-esteem and added pressure for the unpopular prime minister, Fumio Kishida.
“After having given up second place to China behind the United States in 2010, Japan is now also leaving third place,” wrote Japan’s main economic daily Nikkei in an editorial last week.
“Japan has not made progress to increase its own growth potential. This situation is a warning signal to accelerate economic reforms that have been ignored,” he added.
Source: Ambito
