Germany has surpassed Japan as the world’s third-largest economy, with a GDP of $4.5 trillion, while Japan’s economy stood at $4.2 trillion.
The change did not come because Berlin outperformed Tokyo, in fact the former economy plunged by 0.3% last year. The change has come amid the Bank of Japan’s move to maintain negative interest rates as well as the depreciation of its currency, the yen.
Japan’s economy had slipped into recession after shrinking for a second quarter due to low domestic demand. It grew 1.9% in 2023 in nominal terms – meaning it is not adjusted for inflation.
Yoshitaka Shindo, the economy revitalisation minister said that Germany leapfrogging Japan showed it was “imperative” to promote structural reforms by bringing in more foreign investment and encouraging more women into the workforce.
Much of Japan’s economy falling has been attributed to the yen’s sharp falls against the dollar over the past two years. A weaker yen eats into profits on exports when earnings are repatriated.
There are also other challenges that Japan faces. A shrinking population along with lower birth rate is expected to worsen worker shortage in Japan. It may lead to further fall in GDP.
The challenges are not really different for Germany. Ageing population, dependency on exports are two factors coupled with the heavy impact of rising energy prices caused by Russia’s war in Ukraine, rising interest rates in the eurozone and a chronic shortage of skilled labour.
Japan ceded the second spot to China about a decade ago.
The US, which is the largest economy, makes up for a quarter of the world’s GDP at $25.5 trillion. It is followed by China ($18 trillion GDP), Germany ($4.5 trillion GDP) and Japan ($4.2 trillion GDP).
According to the IMF, India’s economy is projected to overtake Japan in 2026 and Germany in 2027.
