Germany will take Japan’s place as the world’s third largest economy in 2023

Germany will take Japans place as the worlds third largest

Japan lost its symbolic title of third world economic power to Germany in 2023, notably under the effect of the fall of the yen, according to preliminary data on Japanese gross domestic product (GDP) published on Thursday.

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Japan’s nominal (i.e. unadjusted for inflation) GDP in 2023 was around $4.2 trillion, compared to around $4.5 trillion for Germany, whose nominal GDP was boosted by inflation, which remained high last year in the country. But in real terms, that is to say without the bias of inflation, Japanese GDP accelerated last year (+1.9%, compared to 1% in 2022), while the German economy is It contracted by 0.3% according to official data published in January.

An exporting power, Germany suffers from weak external demand, energy costs for its important manufacturing sector and interest rates raised by the European Central Bank (ECB) in an attempt to beat inflation. The deterioration of the economic situation in Germany means that its new title of third economic power in the world, which was promised to it since last October by the forecasts of the International Monetary Fund (IMF), is perceived as a sham across the Rhine.

Especially since India could overtake both Japan and Germany within a few years, still in nominal GDP denominated in dollars. The bubbling economy of the new most populous country on the planet could reach their height as early as 2025, according to Brian Coulton, economist at Fitch Ratings interviewed by AFP. But “ obviously, Indian GDP per capita will remain much lower than those of Germany and Japan “, he clarified.

In Japan, local media have extensively commented on the loss of its third economic ranking in the world, recalling that beyond the exceptional impact of the fall of the yen, powerful negative fundamental factors are at work, such as demographic decline. accelerated growth of the archipelago and the chronic weakness of its productivity. “ After giving up second place behind the United States to China in 2010, Japan is now also dropping third place » lamented the major Japanese economic daily Nikkei in an editorial published last Saturday. “ Japan has not made progress in increasing its own growth potential. This situation should be a wake-up call to accelerate economic reforms that have been neglected », added the Nikkei.

Japan enters recession

Like Germany, Japan is an industrial and exporting power, but this status has been losing momentum for a long time and its domestic consumption is currently undermined by inflation and the fall of the yen. The decline of the Japanese currency continued last year (-7% against the dollar). It mainly comes from the gap between the drastic monetary tightening carried out in the United States and Europe since 2022 and the maintenance by the Bank of Japan (BoJ) of its ultra-accommodating course.

In the fourth quarter, Japanese GDP contracted again (-0.1% over one quarter in real data adjusted for seasonal variations), a second decline in a row after a more marked decline over the July-September period ( -0.8% according to a figure revised downwards on Thursday). Japan is thus experiencing a technical recession, a slight surprise given that the consensus of economists from the Bloomberg agency had predicted a slight rebound of 0.2% in the fourth quarter. Japanese household consumption fell by 0.2% over the past quarter, and non-residential investments by private companies by 0.1%. The only clarification is that the net contribution to GDP of exports of goods and services was slightly positive, with an increase of 2.6% in exports for an increase of 1.7% in imports.

The Japanese economic situation, which is more gloomy than expected, could complicate the Bank of Japan’s task of beginning the end of its ultra-accommodating monetary policy this year. But this process promises to be extremely gradual, with the BoJ being very careful not to not destabilize the archipelago’s economy and financial markets. The IMF predicts moderate economic growth in Japan this year (+0.9%).