Japan’s economy has dropped to the fourth largest in the world. It fell behind Germany after its economy shrank in the last quarter of 2023.
The Japanese government reported Thursday the economy shrank at an annual rate of 0.4 percent in October to December.
It shrunk 2.9 percent from July to September. Two straight quarters of shrinkage are considered a sign that an economy is in a recession.
Real gross domestic product is a measure of the value of a nation’s products and services. The yearly rate measures what would have happened if the quarterly rate lasted a year.
Japan’s economy was the second largest until 2010, when it was overtaken by China’s. It had been the third-largest economy until it fell behind Germany.
Japan’s nominal GDP totaled $4.2 trillion last year. Germany’s was between $4.4 and $4.5 trillion.
Real GDP takes into account inflation, while nominal GDP does not.
A weaker Japanese yen was a major reason for the drop to fourth place. But economists say the drop is also due to a decline in its population and slowing productivity and competitiveness.
In the past, Japan was described as a “an economic miracle.” After much of the country was destroyed in World War II, it became the second-largest economy after the United States. It continued to see strong growth in the 1970s and 1980s. But in the last 30 years, the economy has grown only moderately at times.
Both the Japanese and German economies are powered by strong small- and medium-size businesses with strong productivity.
Germany’s economy has gotten very strong in the past 20 years. It has led worldwide markets for high-end products like luxury cars and industrial machinery. It has sold so much to the rest of the world that half its economy ran on exports. But Germany’s economy also shrank in the last quarter, by 0.3 percent.
Japan's population has been shrinking and aging for many years. It has few foreign residents. Germany’s population has grown to nearly 85 million. Immigration helped to make up for a low birth rate in Germany.
Immigration is one way to solve Japan's labor shortage problem. But the country has been somewhat unaccepting of foreign labor.
Another reason for Japan's slow growth is stagnating wages. People have less money to spend. At the same time, businesses have invested heavily in foreign economies instead of Japan’s aging and shrinking market.
I’m Dan Novak.
