Recession in Japan makes Germany the third largest economy
February 15, 2024
Germany has overtaken Japan as the world’s third-largest economy, official data showed on Thursday, while new figures from Tokyo showed Japan’s economy is slipping into recession.
Japan’s nominal gross domestic product (GDP) for 2023 was $4.2 trillion in dollar terms, government data showed, compared with Germany’s $4.5 trillion, according to the latest figures .
The yen fell more than 18% against the dollar in 2022 and 2023. This includes a 7% depreciation last year, in part because the Bank of Japan (BOJ) maintained negative interest rates.
Meanwhile, the euro used in Germany remained more or less stable against the dollar in general over the same period.
India is expected to overtake both countries sooner or later
The German and Japanese economies face comparable big problems of labor shortages, falling birth rates and an aging population, but Japan is the more acute case of the two.
Although the economy grew 1.9% overall, last year it contracted for the last two consecutive quarters, the data showed.
Two consecutive quarters of contraction are typically considered the definition of a technical recession.
Both Japan, with a population of around 125 million people, and the considerably smaller Germany, with around 83 million people, are known worldwide as exporters of high-quality manufactured goods, the most obvious shared example being the automobile sector. .
For years, Japan was the world’s second-largest economy, behind the US, until it was overtaken by China in 2010.
Developing giant India, with the majority of its 1.4 billion people under the age of 35 and higher growth rates, is expected to overtake both economies to become the third largest in the world, behind the United States and China, probably very soon.
Open questions for the Bank of Japan on monetary policy
The weak data from Japan could cast doubt on the Bank of Japan’s forecast that rising wages will boost consumption and allow the central bank to phase out stimulus.
“There is a risk that the economy will shrink again in the January-March quarter due to slowing global growth, weak domestic demand and the impact of the New Year earthquake in western Japan,” said Takuji Aida, chief economist at Credit Agricole, to Reuters. news agency.
“The Bank of Japan may be forced to drastically reduce its optimistic GDP forecasts” for 2023 and 2024, he said.
However, some analysts said Japan’s tight labor market and robust corporate spending plans kept alive the BOJ’s plans to abandon ultra-loose monetary policy.
“While the second consecutive GDP contraction in the fourth quarter may suggest that Japan’s economy is now in recession, business surveys and the labor market tell a different story,” said Marcel Thieliant, head of Asia-Pacific at Capital Economics, to Reuters.
“In any case, growth is expected to remain sluggish this year as the household savings rate has turned negative,” he said.
Source: DW
Lori Barajas is an accomplished journalist, known for her insightful and thought-provoking writing on economy. She currently works as a writer at 247 news reel. With a passion for understanding the economy, Lori’s writing delves deep into the financial issues that matter most, providing readers with a unique perspective on current events.