Roving Periscope: Germany replaces aging Japan as the 4th largest economy
Virendra Pandit
New Delhi: With Germany replacing it as the third-largest world economy, Japan has now slipped to the fourth place in the global pecking order, after it contracted in the last quarter of 2023.
Until overtaken by China in 2011, Japan’s economy was the second-largest after the USA. Japan’s nominal GDP totaled USD 4.2 trillion in 2023, while its Second World War partner Germany’s was around USD 4.5 trillion.
The US remains the world’s largest economy by far, with GDP at USD 27.94 trillion in 2023, followed by China’s USD 17.5 trillion.
India is the fifth largest economy now, with a GDP worth about USD 3.7 trillion but growing at a sizzling rate of around 7 percent.
Tokyo reported that although its overall national economy grew 1.9 percent across 2023, it contracted 2.9 percent in the July-September quarter and 0.4 percent in the October-December 2023 period.
According to Cabinet Office data on real GDP two straight quarters of contraction are viewed as an indicator of an economy’s technical recession.
A weaker Japanese yen was a key factor in the drop to fourth place since comparisons of nominal GDP are in dollar terms. But Japan’s relative weakness also reflects a decline in its population and lagging productivity and competitiveness, the media reported on Thursday.
Real gross domestic product (GDP) 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.
Rising from the ashes of the Second World War (1939-45), Japan became an economic miracle and the second-largest economy after the US until the 1980s. But for most of the past three decades, its economy grew only moderately at times, mainly remaining in the doldrums after the collapse of its financial bubble began in 1990.
Both the Japanese and German economies are powered by strong small and medium-sized businesses with solid productivity.
Like Japan in the 1960s-1980s decades, Germany roared ahead in the early 21st century, dominating global markets for high-end products like luxury cars and industrial machinery, as half its economy ran on exports.
But Germany’s economy, one of the world’s worst performing in 2023, also contracted in the last quarter by 0.3 percent.
Japan, an island nation with relatively few foreign residents, its population has been shrinking and aging for years, while Germany’s has grown to nearly 85 million, as immigration helped to make up for a low birth rate.
Data reflect the realities of a weakening Japan and will likely result in its commanding a lesser presence in the world. For instance, the advent of electric vehicles has shaken Japan’s auto sector.
Also, the gap between developed countries and emerging nations is shrinking, with India likely to overtake Japan in nominal GDP in this decade.
Immigration is one option for solving Japan’s labor shortage problem, but the country has been relatively unaccepting of foreign labor, except for temporary stays, prompting criticism about discrimination and a lack of diversity.
Robotics, another option, are gradually being deployed but not to the extent they can fully make up for the lack of workers.
Another key factor behind Japan’s sluggish growth is stagnating wages that have left households reluctant to spend. At the same time, businesses have been invested heavily in faster-growing economies overseas instead of in the aging and shrinking home market.
Private consumption fell for three straight quarters last year and growth is set to remain sluggish this year as the household savings rate has turned negative. Economists have forecast the GDP growth will slow from 1.9 percent in 2023 to around 0.5 percent this year.
