Japan has fallen into recession after being overtaken by Germany as the world’s third-largest economy as it battles a weak yen, aging population and a declining population, according to data released Thursday.
Japan’s economy, currently the world’s fourth largest, grew by 1.9% in 2023 in nominal terms. In dollar terms, gross domestic product (GDP) was 1.9%, not adjusted for inflation. $4.2 trillion compared to Germany’s $4.5 trillion.
The change, which comes more than a decade after it ceded the number two spot to China, is believed to be due to the yen’s sharp depreciation against the dollar over the past two years. A weaker yen puts pressure on export profits when profits are repatriated. The Japanese currency has fallen by almost a fifth against the US dollar in 2022 and 2023, including a 7% drop last year.
Like Japan, Germany is resource-poor, has an aging population and is heavily dependent on exports. Europe’s largest economy is also reeling from rising energy prices due to Russia’s war in Ukraine, rising interest rates in the euro zone and a chronic shortage of skilled labor.
Japan’s automakers and other exporters have benefited from a weaker yen, making their products cheaper on international markets, but the country’s labor shortage is more severe than Germany’s and the country is struggling to cope. ing. birthrate.
The failure of government-led attempts to boost birth rates means chronic labor shortages are expected to worsen, despite bringing in record numbers of foreign workers.
Economic Revitalization Minister Yoshitaka Shindo told reporters that Germany’s overtaking Japan meant it was “essential” to push ahead with structural reforms, such as putting more women in full-time work and lowering barriers to foreign investment. He said he has shown that.
“We will deploy all policy tools to support wage increases” to promote demand-driven growth, Kyodo News reported.
Data on Thursday showed that real GDP (total goods and services) shrank by 0.1% quarter-on-quarter in the last three months of 2023 as household and business spending slumped. Cabinet Office.
Personal consumption, which accounts for more than half of Japan’s total economic activity, fell by 0.2% as households suffered from rising living costs and falling real wages.
The previous quarter’s growth rate was also revised downward to -0.8%, meaning Japan is in a technical recession (usually defined as two consecutive quarters of recession).
During the economic boom of the 1970s and 1980s, some predicted that Japan would overtake the United States as the world’s largest economy, as it exported cheap, high-quality cars and home appliances.
Instead, the collapse of Japan’s asset-inflated bubble economy in the early 1990s ushered in a “lost decade” of several years of economic stagnation and deflation.
Tetsuji Okazaki, a professor of economics at the University of Tokyo, said the latest data reflects the reality of a weakened Japan, and its presence in the global economy is expected to decline. “A few years ago, for example, Japan boasted a strong automobile sector. But with the advent of electric cars, even that advantage has been shaken,” he said.
In 2010, China’s newfound status as the world’s second-largest economy prompted Japan to explore its ability to keep pace with emerging economies.
Japan’s recent fall to fourth place has been blamed on dramatic currency fluctuations, but losing its third place to Germany’s struggling economy is a threat to Japan’s self-respect and its already unpopular status. This will be a blow to Prime Minister Fumio Kishida.
And this slide is unlikely to end here. According to the International Monetary Fund, India’s economy is expected to overtake Japan in 2026 and Germany the following year, supported by a growing young population.
The Nikkei Sangyo Shimbun said in a recent editorial that Japan has not been able to increase its growth potential, and economists blame this predicament on the population crisis.
The Nikkei Shimbun said, “This situation should be seen as a wake-up call to accelerate economic reforms that have been ignored.”
