Japan Loses Third-Largest Economy Position to Germany Amid Recession

By Consultants Review Team Thursday, 15 February 2024

Japan has been displaced as the world's third-largest economy by Germany, according to Deepak Jasani, Head of Retail Research at HDFC Securities. In 2023, Japan's nominal GDP stood at $4.2 trillion, or about 591 trillion yen, while Germany's nominal GDP was reported to be $4.4 trillion, depending on the currency conversion.

For the October-December quarter, Japan's economy contracted at an annual rate of 0.4 percent and decreased by 0.1 percent compared to the previous quarter, as per data from the Cabinet Office on real GDP. The real GDP for the entire year showed a growth of 1.9 percent from the previous year.

This decline follows a 3.3 percent contraction in the third quarter, marking two consecutive quarters of contraction, which is commonly regarded as a technical recession. BBC reported that Japan unexpectedly entered into recession after its economy shrank for two consecutive quarters.

The latest figures from Japan's Cabinet Office indicate that the country might have also lost its status as the world's third-largest economy to Germany. Economists had anticipated a growth of over 1 percent in Japan's GDP for the fourth quarter of the previous year.

In October, the International Monetary Fund (IMF) had predicted that Germany was poised to surpass Japan as the world's third-largest economy when measured in US dollars. The IMF will officially declare a change in rankings once both countries publish the final versions of their economic growth figures.

Economist Neil Newman explained that Japan's economy was valued at around $4.2 trillion in 2023, while Germany's was $4.4 trillion. He attributed this shift to the yen's weakness against the dollar and suggested that if the yen strengthened, Japan could regain its position.

The yen's depreciation against the dollar has benefited some of Japan's major corporations by making exports, such as cars, more affordable in international markets. Consequently, Tokyo's main stock index, the Nikkei 225, surpassed the 38,000 mark for the first time since 1990, reflecting positive market sentiment despite economic challenges

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