Japan, once a powerhouse economy and a global leader, has lost its status as the world’s third-largest economy after slipping into recession and being surpassed by Germany. The decline in rank comes as Japan grapples with a weak yen and the challenges posed by its aging and shrinking population.
According to recent data released on Thursday, Japan’s nominal GDP grew by 1.9% in 2023, reaching $4.2 trillion, but it still fell short compared to Germany’s $4.5 trillion GDP. The weakening Yen against the US dollar over the past two years has been a significant factor in this shift, affecting the profitability of Japanese exports.
While Japan and Germany share similarities in being resource-poor and having ageing populations, Germany’s economy has weathered challenges such as rising energy prices and a shortage of skilled labor. Japan, on the other hand, faces a severe labor crunch and struggles to boost its birthrate despite efforts by the government.
Yoshitaka Shindo, the economy revitalization minister, emphasized the need for structural reforms to address these issues, including promoting women’s participation in the workforce and attracting more foreign investment. However, recent economic data revealed a 0.1% contraction in real GDP in the last quarter of 2023, leading to Japan’s technical recession. Tetsuji Okazaki, an economics professor at the University of Tokyo, noted that Japan’s once dominant auto sector has also faced challenges with the rise of electric vehicles, contributing to its economic decline.
As the nation grapples with its economic challenges, calls for accelerated reforms have intensified, highlighting the need for Japan to address its demographic crisis and enhance its growth potential to remain competitive in the global economy.
