Japan looses its third largest economy title and fell behind Germany which is now the new owner of this title
Japan has slipped to the world’s fourth-largest economy as per government data released on January 15 showed that it fell behind Germany in the last quarter of 2023. The International Monetary Fund had forecasted Japan’s economy fall.
The government reported that the economy shrank at an annual rate of 0.4% in the months between October to December, according to Cabinet Office data on real GDP, though it grew by 1.9% for all of 2023. It contracted by 2.9% in the months of July-September. The straight two quarters in contraction states that the Japan’s economy is in recession.
Japan’s economy was the second largest till 2010,but then it was overtaken by China’s economy. Japan’s nominal GDP totaled $4.2 trillion last year, or about 591 trillion yen, while Germany’s was $4.4 trillion or $4.5 trillion, depending on the currency conversion.
Real gross domestic product is a measure of the value of a nation’s products and services. The annual rate measures what would have happened if the quarterly rate lasted a year.
The numbers highlight how the Japanese economy has lost its competitiveness in the market while the population of Japan is declining day-by-day as Japanese people age and have fewer children, says analysts.
Japan was historically been known as the economic miracle, despite facing many challenges like World War 2, it grew its economy exponentially and became the second largest economy after the US. It kept that going until 1970s-1980s. But from the past 30 years its economy is increasing at moderate speeds.
Both Germany and Japan has built their economies through strong small and medium-size businesses with solid productivity. In contrast to Japan, Germany has shown solid and strong economic foundation with the help of its strong currency i.e., euro and also inflation. While Japan dwelt with its weak yen which contributed as a minus factor for its economic decline.
The latest data reflect the realities of a weakening Japan and will likely result in Japan’s commanding a lesser presence in the world, said Tetsuji Okazaki, professor of economics at the University of Tokyo.
“Several years ago, Japan boasted a powerful auto sector, for instance. But with the advent of electric vehicles, even that advantage is shaken,” he said.
The gap between developed countries and emerging nations is shrinking, with India certain to overtake Japan in nominal GDP in a few years, Mr. Okazaki said.
The US remains the world’s largest economy by far, with GDP at $27.94 trillion in 2023, while China’s GDP was at $17.5 trillion. India’s GDP is about $3.7 trillion but is growing at a rate of around 7%
Immigration is one option for solving Japan’s growing labor shortage problem, but the country is not willing to accept foreign labor, except for temporary stays, prompting criticism about discrimination and a lack of diversity.
Another option is robotics, which has been playing out since many years but it is also not enough to cope up with nation’s chronic labor shortage.
Another key factor for Japan’s declining economy is stagnant wages which has left households reluctant to spend. Also businesses is spending heavily on faster growing economies instead of ageing house market.
Private consumption fell for three straight quarter years last year and the growth is yet to remain stagnant this year too, Marcel Thieliant of Capital Economics said in a commentary. “Our forecast is that GDP growth will slow from 1.9% in 2023 to around 0.5% this year.
Made in Japan earned a reputation in International market as it offered cheap and gave quality and some products became famous and most used around the world.
Many factors have yet to play out, Mr. Okazaki said.
“But when looking ahead to the next couple of decades, the outlook for Japan is dim,” he said.