Japan lost its status as the world’s third-largest economy to Germany and unexpectedly slipped into recession in the final quarter of last year due to weak domestic demand. As the government in Tokyo announced, Japan’s nominal gross domestic product in 2023 amounted to 4.21 trillion dollars (3.9 trillion euros). This means that Japan is now only number four in the world economy after Germany with $4.46 trillion.
This is mainly due to the sharp fall in the value of the yen. In the October to December quarter, Japan’s economy shrank by 0.1 percent compared to the previous quarter, the second quarter in a row. With two negative quarters in a row, economists are talking about a technical recession.
Private consumption, which accounts for more than half of Japan’s economic output, fell by 0.2 percent, marking the third consecutive quarter of decline, the government announced. Households in the island nation, which is suffering from rapid aging, are struggling with rising living costs and falling real wages.
Corporate investment spending was also weak, falling by 0.1 percent. “The fact that Germany has overtaken Japan shows that we absolutely need to push forward with structural reforms and create a new phase of growth,” said Economic Revitalization Minister Yoshitaka Shindo in Tokyo. The USA and China are in the first two places.
Economists such as Yoshiki Shinke from the Dai-ichi Life Research Institute expect a further decline in economic output in the first quarter of this year due to falling exports, as the business newspaper “Nikkei” reported. Economists expect that the Japanese central bank will probably begin in April to normalize the monetary policy that has been aggressively loosened for years and will raise the current negative interest rates.
However, economists like Shinke are skeptical about whether the country’s economy is strong enough “to raise interest rates further afterwards.” According to experts, companies in Asia’s second-largest economy will have to sharply increase their still relatively low productivity. This will hit many companies hard because wage demands will go up at the same time.
