Japan cedes title of third world economic power to Germany

It’s a symbolic name and a lot of ink has been spilled over it. Japan will lose its place as the world’s third-largest economic power to Germany in 2023, due in part to the depreciation of the yen, according to the first estimate of Japan’s gross domestic product (GDP) released on Thursday.

Japan’s nominal GDP in 2023 was about $4.2 trillion, compared with about $4.5 trillion in Germany, whose nominal GDP has been boosted by inflation, which remained high in the country last year.

But in real terms, that is, without taking into account inflation, Japan’s GDP accelerated last year (+1.9% compared to 1% in 2022), while the German economy contracted by 0.3, according to official data published in January %. .

Rise of India

An exporter, Germany has been hit by weak external demand, energy costs for its large manufacturing sector and interest rates raised by the European Central Bank (ECB) in an attempt to beat inflation.

Germany’s deteriorating economic situation means that its new title as the world’s third-largest economic power, promised to it since October last year according to International Monetary Fund (IMF) forecasts, is seen across the Rhine as a sham.

Moreover, India could overtake Japan and Germany within a few years, still in terms of nominal GDP expressed in dollars. The booming economy of the new most populous country on the planet could peak as soon as 2025, according to Brian Coulton, an economist at Fitch Ratings, in an interview with AFP.

But “it is clear that India’s GDP per capita will remain much lower than Germany and Japan,” he said.

“Wake-up call” for the archipelago

In Japan, local media have widely commented on the country’s loss of third economic ranking in the world, recalling that in addition to the exceptional impact of the falling yen, there are powerful negative fundamental factors at work, such as the accelerated demographic decline of the Japanese economy. archipelago and the chronic weakness of its productivity.

“After losing second place to the United States to China in 2010, Japan is now losing third place,” Japan’s largest economic daily Nikkei lamented in an editorial published last Saturday.

“Japan has made no progress in increasing its own growth potential. This situation should be a wake-up call to accelerate neglected economic reforms,” Nikkei added.

Like Germany, Japan is an industrial and exporting power, but that status has long been in decline and its domestic consumption is currently undermined by inflation and a falling yen.

The fall of the Japanese currency continued last year (-7% against the dollar). This is mainly due to the gap between the sharp tightening of monetary policy implemented in the US and Europe from 2022 and the Bank of Japan (BoJ) maintaining its ultra-accommodative stance.

“Japan must carry out more structural reforms,” Japan’s Economic Revival Minister Yoshitaka Shindo agreed on Thursday, also emphasizing the need to push for wage increases to keep pace with inflation.

GDP is falling

Japan’s GDP contracted again in the fourth quarter (-0.1% for the quarter in seasonally adjusted real data), the second decline in a row, following a more pronounced decline in the July-September period (-0.8% in real terms). revised downward on Thursday).

Japan is thus in a technical recession, which is a slight surprise given that Bloomberg economists had forecast a slight recovery of 0.2% in the fourth quarter.

The country’s industrial production was also revised downward in December (+1.4% for the month versus +1.8% initially), according to a figure released separately on Thursday.

Faced with this disappointing picture, “the Bank of Japan is likely to become even more cautious” about the start of monetary tightening expected this year, which was already expected to be extremely gradual, Min Joo Kang, an economist at the Dutch jar. banking.

The Bank of Japan’s first rate hike – an unprecedented event since 2007 – could now happen no longer in March or April, but rather in June or even in the third quarter if growth continues as expected at the start of the year, he said. . he adds. The IMF forecasts moderate economic growth for Japan this year (+0.9%).