Germany overtakes Japan as third-biggest economy

FE Team | Published: February 16, 2024 00:33:49

TOKYO, Feb 15 (AFP): Once forecast to become the world's biggest economy, Japan slipped below Germany last year to fourth place, official data showed Thursday, although India is projected to leapfrog both later this decade.
Despite growing 1.9 per cent, Japan's nominal 2023 gross domestic product in dollar terms was $4.2 trillion, government data showed, compared with $4.5 trillion for Germany, according to figures released there last month.
The change in positions primarily reflects the sharp fall in the yen against the dollar, rather than the German economy-which contracted 0.3 per cent in 2023 -- outperforming Japan, economists said.
The Japanese currency slumped by almost a fifth in 2022 and 2023 against the US currency, including around seven per cent last year.
This was in part because in an effort to boost prices the Bank of Japan has maintained negative interest rates, unlike other major central banks which have raised borrowing costs to fight soaring inflation.
"The overtaking... in size in dollar terms owes a lot to the recent collapse in the yen. Japan's real GDP has actually outperformed Germany's since 2019," said Fitch Ratings economist Brian Coulton.
Germany's heavily export-dependant manufacturers have been hit particularly hard by soaring energy prices in the wake of Russia's invasion of Ukraine. Europe's biggest economy has also been hampered by the European Central Bank raising interest rates in the eurozone as well as uncertainty over its budget and chronic shortages of skilled labour.
Japan is also heavily reliant on exports, in particular cars, although the weak yen-making exports cheaper-has helped big firms like Toyota offset weakness in key markets such as China.
But it is suffering more than Germany in terms of worker shortages as its population falls and birth rates remain low, and economists expect the gap between the two economies to widen.