As of: February 15, 2024, 12:26 p.m
By: Lars-Eric Nievelstein
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For a long time, Japan was the third largest economy after the USA and China.
Now the country is losing its place – to Germany.
Internal problems are responsible for this.
Tokyo - In the fourth quarter of 2023, Japan slipped into recession and had to give up its status as the third largest economy to Germany.
The Japanese government announced on Thursday that nominal gross domestic product shrank to $4.21 trillion (€3.9 trillion) in the fourth quarter of 2023.
In Germany it is currently $4.46 trillion, which is why Japan slipped to fourth place.
Tokyo cited weak domestic demand and the sharp fall in the value of the yen as the reasons for this.
Value of a yen against the euro |
0.0062 euros (February 15) |
|---|---|
GDP Japan |
$4.21 trillion (Q4 2023) |
Economic growth Japan |
Minus 0.1 percent |
Japanese key interest rate |
Minus 0.1 percent (since 2016) |
Economic growth in Japan is declining
Between October and December, Japan's economy shrank by 0.1 percent compared to the previous quarter.
Because this was the second quarter in which the economy contracted, economists are talking about a technical recession.
Japan recorded a decline of 0.2 percent in private consumption, which fell for the third time in a row.
This contributes to a significant part of the economic power;
a decline is therefore clearly noticeable.
Japanese Prime Minister Fumio Kishida (second from left) and other officials after an earthquake in central Japan.
Germany climbs to third place among the largest economies.
© IMAGO / Kyodo News
Japanese households are currently struggling with rising living costs and falling real wages.
As the
dpa
news agency reports, the country is also suffering from an enormous aging population.
Weak key interest rates drive exports
Last summer things looked completely different.
Gross domestic product grew by 1.5 percent between April and June 2023, even exceeding the pre-pandemic peak.
The Japanese central bank was partly responsible for Japan's astonishing economic strength.
This had kept the key interest rate low for years (it has been minus 0.1 percent since 2016) in order to support the economy.
Japanese exports were comparatively cheap due to the devaluation of the yen on the world market, while imports were particularly expensive.
While Japan recorded steady growth on the export side, the
Tagesschau
reported , imports declined constantly.
According to economists, rising inflation was a small blessing for Japan.
The country had previously struggled with deflation for decades.
This occurs when the general price level declines, which in turn can lead to a downward spiral.
Falling sales are then accompanied by falling wages, and there can also be surplus workers and ultimately a lack of investment.
“Japan is in the process of shaking off a deeply rooted deflationary mindset,” said Asian asset manager Nikko AM.
Private consumption is weakening – the economy is collapsing
However, economists had already predicted back then that this economic boom would not last.
Japan's private consumption was able to compensate for weak foreign trade for a long time;
Japanese households increased their spending several times in a row.
This effect weakened noticeably over the course of 2023.
“Headwinds are now coming from abroad, especially from China,”
Wirtschaftswoche
quoted Martin Schulz, chief economist at IT giant Fujitsu, as saying.
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In addition to declining private consumption, which is now putting pressure on GDP, Japan was already struggling with declining trade with China.
In July, Japan's exports fell for the first time in two and a half years.
China, otherwise an important trading partner for Japan, accepted fewer cars, stainless steel and semiconductors, and exports fell by 13 percent.
The Middle Kingdom is still struggling with the effects of the coronavirus pandemic.
Although the two Asian countries are important trading partners, many Asian neighbors view China's military ambitions with suspicion.
One of the biggest problems in Japan is the increasing aging population.
The government had already announced that it wanted working pensioners - the longer the workforce was active, the better.
Almost one in four Japanese pensioners is still working and the birth rate is falling.
Just like in Germany and other western countries, there is still no perfect solution.
Structural reforms in Japan – central bank could raise interest rates
For the Japanese government, Germany's overtaking maneuver is a warning signal.
It “shows that it is imperative that we push forward structural reforms and create a new phase of growth,” said Economic Revitalization Minister Yoshitaka Shindo.
However, that takes time.
Economists predict a further decline in Japan's economic output in 2024.
In the first quarter of the year, falling exports were still putting pressure on economic development.
In April, economists like Yoshiki Shinke of the Dai-ichi Life Research Institute expect the central bank to raise interest rates for the first time in almost eight years.
Many companies would have to significantly increase their “relatively low” productivity.
It is not yet possible to foresee what impact this will have on companies - especially since Japanese employees could then increase their wage demands.
With material from dpa