Japan enters recession and gives Germany the position of third largest world economy

This Thursday, Japan lost the bronze medal of the largest world economies.

The country of the rising sun has ceded third place on the podium to a Germany in low times, after unexpectedly falling into technical recession, as revealed this morning by the Japanese authorities.

Although the economy of the Asian archipelago grew by 1.9% in 2023, the Gross Domestic Product (GDP) in the fourth quarter experienced an annualized decline of 0.4%, which adds to the 3.3% collapse registered in the third quarter .

The figure has remained well below the most widespread forecasts among analysts, who anticipated an increase of 1.4% for the period between October and December.

By chaining two quarters in the red, the economy has entered a technical recession.

The International Monetary Fund (IMF) forecast in October that Germany would likely overtake Japan as the world's third-largest economy despite contracting 0.3% last year.

And so it has happened.

Tokyo announced this morning that the nominal GDP – the value of production in dollars, without inflationary adjustments – of the Japanese archipelago rose to 4.2 trillion dollars, while that of Germany is around 4.5 trillion dollars.

The change in paradigm occurs more than a decade after Japan gave up second place in the ranking to China and is attributed above all to the strong devaluation that the yen has suffered against the dollar in recent years;

In 2022 and 2023, the Japanese currency has deteriorated by more than 18% compared to the US currency.

Japan depends heavily on its foreign trade, especially car exports, and the sharp depreciation of its currency reduces profits from foreign sales by transferring them to yen.

Analysts attribute the fall of the Japanese currency to the central bank's decision to maintain negative interest rates to boost prices.

The strategy is contrary to that adopted in other countries, which have increased rates to combat inflation.

“Two consecutive falls in GDP and three consecutive declines in domestic demand are bad news,” says Stephan Angrick, an economist at Moody's Analytics, quoted by Reuters.

“This makes it more difficult for the central bank to justify its rate hike, much less multiple rate hikes,” he adds.

Demographic crisis

Economy Minister Yoshitaka Shindo this morning stressed the need to achieve solid wage growth to support consumption.

However, although many experts expect the Bank of Japan to gradually withdraw its ultra-flexible stimulus policy this year, the weak data published cast doubt on those forecasts and whether inflation can be maintained lastingly around the 2% target.

Another problem facing the country is a serious demographic crisis, which threatens to reduce the workforce and widen the gap between economies.

In fact, the IMF expects that the economy of India, the most populous country on the planet, will surpass that of Japan in 2026 and that of Germany in 2027.

Falling behind Germany is a blow to Japan's self-esteem and adds pressure on Prime Minister Fumio Kishida's government.

In an editorial, the Japanese business daily Nikkei criticized that “Japan has not made progress to increase its own growth potential.

“This situation is an alarm signal to accelerate economic reforms that have been ignored.”

Follow all the information on

and

, or in our