Once forecast to become the world’s biggest economy, Japan slipped below Germany last year to fourth place, official data showed Thursday, although India is projected to leapfrog both later this decade.
Despite growing 1.9%, Japan’s nominal 2023 gross domestic product in dollar terms was $4.2 trillion, government data showed, compared with $4.5 trillion for Germany, according to figures released there last month.
The change in positions primarily reflects the sharp fall in the yen against the dollar, rather than the German economy – which contracted 0.3% in 2023 – outperforming Japan, economists said. The Japanese currency slumped by almost a fifth in 2022 and 2023 against the US currency, including around 7% last year.
This was in part because in an effort to boost prices the Bank of Japan has maintained negative interest rates, unlike other major central banks which have raised borrowing costs to fight soaring inflation.
“The overtaking… in size in dollar terms owes a lot to the recent collapse in the yen. Japan’s real GDP has actually outperformed Germany’s since 2019,” said Fitch Ratings economist Brian Coulton.
Germany’s heavily export-dependent manufacturers have been hit particularly hard by soaring energy prices in the wake of Russia’s invasion of Ukraine.
Europe’s biggest economy has also been hampered by the European Central Bank raising interest rates in the eurozone as well as uncertainty over its budget and chronic shortages of skilled labour.
Japan is also heavily reliant on exports, in particular cars, although the weak yen – making exports cheaper – has helped big firms like Toyota offset weakness in key markets such as China.
But it is suffering more than Germany in terms of worker shortages as its population falls and birth rates remain low, and economists expect the gap between the two economies to widen.
Thursday’s data showed that Japan’s economy shrank an adjusted 0.1% quarter-on-quarter in the last three months of 2023, missing market expectations of 0.2% growth.
Growth for the third quarter was also revised downward to negative 0.8%, meaning that Japan was in technical recession in the second half of 2023.
“Like Japan, Germany’s population has been declining, but it has nevertheless achieved steady economic growth,” said Toshihiro Nagahama, economist at Dai-ichi Life Research Institute.
“This is because, especially since the 2000s, the government authorities in Germany have been actively implementing policies to create an environment that makes it easier for companies to operate in the country,” he said. – AP
