Germany is now the third largest economy in the world, overcoming Japan which enters a technical recession.
Germany is now the world’s third-largest economy as Japan reports a much worse-than-expected GDP growth in 2023. In absolute terms, Germany’s GDP amounted to $4.4 trillion last year, compared to $4.3 trillion in Japan.
The Japanese economy was widely expected to grow by 1% in the third quarter of 2023. Instead, it contracted by 0.4% year-on-year.
In the previous quarter, Japan’s GDP contracted by an eye-popping 3.3%, placing it as one of the worst-performing major economies in 2023.
Because of Thursday’s reading, Japan is technically in a recession. A recession is defined by most central banks as two quarters in a row of economic contraction. However, this is only a general definition and a country’s recession is usually announced arbitrarily by a central bank.
For this reason, the Bank of Japan has not declared a recession yet. Fumio Kushida is one of the least popular prime ministers in recent Japanese history, and a declaration of recession would virtually end his political career.
On the other side of the world, the United Kingdom also fell into a recession on Thursday morning. The UK’s economy contracted by 0.4% in the last quarter of 2023 after falling by 0.1% the three months prior.
Decade-long stagnation
With Germany overcoming Japan in GDP terms, this makes it the second time in 10 years Japan lost a position in the ranking. Until 2013, Japan was the second-largest economy in the world behind the United States. It then lost its position to China, whose economy is now almost 4 times larger than Japan’s.
The new ranking now sees the US in the top position with $23.3 trillion, China in second place with $17.7 trillion, Germany with $4.4 trillion, and Japan with $4.3 trillion.
After the Second World War, Japan was the fastest-growing economy in the world. Many believed it would overcome the United States, but suddenly lost competitiveness and began to stagnate in the 1990s.
Since then, Japan’s GDP essentially remained unchanged. It grew slightly after the 2008 crisis, only to come back down as China gained 2nd place.
This decade-long stagnation is the reason why the BoJ keeps interest rates negative. Even though the country’s inflation is rising, bringing interest rates up would further worsen Japan’s economic outlook.
The declining birth rate, an aging population, and China’s competition are often cited as reasons for Japan’s loss of competitiveness. The former Asian giant is expected to further decline economically in the following years.
