Japan falls into recession and becomes the fourth largest economy after the United States, China, and Germany

TOKYO — Japan’s economy is now the world’s fourth largest, after contracting in the final quarter of 2023 and falling behind Germany.

According to Cabinet Office data on real GDP, the government reported that the economy contracted at an annual rate of 0.4% between October and December, but grew by 1.9% for all of 2023. It contracted by 2.9% from July to September. Two consecutive quarters of economic contraction are considered an indicator that the economy is in a technical recession.

Japan’s economy was in second place until 2010, but it was then overtaken by China. Japan’s nominal GDP last year was $4.2 trillion, while Germany’s was $4.4 trillion or $4.5 trillion, depending on currency conversion.

Since the comparison of nominal GDP is based on dollars, the weaker yen was the main reason for the decline to fourth place. But Japan’s relative weakness also reflects a declining population and lagging productivity and competitiveness, economists say.

Real gross domestic product is a measure of the value of a country’s products and services. The annual rate measures what would happen if the quarterly rate continued for one year.

Historically, Japan has been hailed as an “economic miracle,” rising from the ashes of World War II to become the second largest economic power after the United States. It lasted from the 1970s to her 1980s. However, for most of the past 30 years, the economy has experienced only modest growth at times, and has remained largely sluggish since the financial bubble began to burst in 1990.

Both Japan’s and Germany’s economies are supported by strong small and medium-sized enterprises with solid productivity.

Like Japan from the 1960s to the 1980s, Germany dominated the world market for high-end products such as luxury cars and industrial machinery for most of this century, selling so many products around the world that exports accounted for half of its economy. and made great progress.

But the country’s economy, which was one of the world’s worst performers last year, also shrank by 0.3% in the last quarter.

An island nation with relatively few foreign residents, whose population has been declining and aging for years, Germany’s population has grown to nearly 85 million as immigration offsets a low birth rate.

Tetsuji Okazaki, a professor of economics at the University of Tokyo, said the latest data reflects the reality of a weakening Japan, and that Japan’s presence in the world is likely 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. “Many factors are still unclear,” he said, “but looking ahead to the next few decades, the outlook for Japan is bleak.”

The gap between developed and emerging countries is narrowing, and it is likely that India will overtake Japan in terms of nominal GDP in a few years.

The United States remains the world’s largest economy, with a GDP of $27.94 trillion in 2023, compared to China’s $17.5 trillion. India’s size is about $3.7 trillion, but it is growing at a furious rate of about 7%.

Immigration is one option to solve Japan’s labor shortage problem, but the country is relatively sparse in accepting foreign workers except for temporary stays, leading to criticism of discrimination and lack of diversity.

Another option, robots, is slowly being introduced, but not enough to completely compensate for the shortage of workers.

Another major factor in Japan’s slowing growth is that households are holding back on spending due to stagnant wages. At the same time, companies are investing heavily in fast-growing economies overseas rather than in aging and shrinking domestic markets.

Marcel Thieliant of Capital Economics said in a commentary that consumer spending declined for three consecutive quarters last year, and that growth will continue to slow this year as the household savings rate turns negative. Stated. “Our forecast is that GDP growth will slow from 1.9% in 2023 to around 0.5% this year.”

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Yuri Kageyama appears on X: https://twitter.com/yurikageyama