Japan has lost its position as the world's third-largest economy to Germany, indicating declining economic competitiveness and productivity, largely attributed to its aging population and declining birth rates.
What Happened: As per government data released on Thursday, Japan's nominal GDP for 2023 was $4.2 trillion, or approximately 591 trillion yen. This places Japan behind Germany, whose nominal GDP was $4.4 trillion, or $4.5 trillion, depending on the currency conversion, reported the Associated Press.
Japan's economy has been on a downward trajectory for some time. It fell from the second-largest economy in the world, behind the U.S., to the third-largest in 2010, as China's economy began to surge. The International Monetary Fund had predicted Japan's fall to the fourth position.
For the October-December quarter, Japan's economy contracted at an annual rate of 0.4% and 0.1% from the previous quarter, according to Cabinet Office data on real GDP. Despite this, the real GDP for the year showed a 1.9% increase from the previous year.
Japan and Germany both built their economies on the foundation of strong small and medium-sized businesses with solid productivity. However, Germany has demonstrated a robust economic base due to a strong euro and inflation, while Japan has been hindered by a weak yen.
Why It Matters: Japan's economic decline is a significant shift, considering its historical position as an economic powerhouse. This development also has implications for global trade and investment. Last year, Japan was touted as a promising investment destination by UBS AG (NYSE: UBS) and JP Morgan (NYSE: JPM), with both firms reinstating their focus on the Japanese stock market.
The country's economic performance has been a topic of interest in recent years. Despite concerns about the impact of high interest rates in the U.S. and a downturn in the Chinese property market, Japan's export-centric economy has continued to thrive, driven by rising consumer prices and a weak yen.
However, the recent decline in GDP and its shift to the fourth position globally raise questions about the sustainability of its economic growth.