Japan's Economic Growth Data Slipping to 4th-Largest Economy in 2023

14 Feb, 2024

Japan's Economic Growth Data Slipping to 4th-Largest Economy in 2023

Japan's latest growth figures are poised to confirm its slip to the fourth-largest economy globally last year. This shift underscores the impact of Japan's weakening currency and aging demographics on its economic standing. While the economy is anticipated to rebound to a growth rate of 1.2% in the fourth quarter after a challenging contraction in the summer, data for the calendar year are expected to show its output value trailing behind Germany's in dollar terms. India, on the other hand, is positioned to surpass both economies in the coming years.

The descent down the economic rankings raises concerns about Japan's trajectory, once touted to eventually lead the global economy. However, unlike the alarm triggered by China's rapid economic ascent in 2010, the reaction among Japanese policymakers and the public has been relatively subdued. This calmness partly stems from the acknowledgment that currency fluctuations have distorted comparisons, along with other factors such as Germany's sluggish economy and positive developments in Japan, such as a booming stock market and potential interest rate hikes by the central bank.

According to Hideo Kumano, executive economist at Dai-Ichi Life Research Institute, currency movements have been a primary factor behind Japan's GDP decline, as the country's weaker currency has diminished its economic size compared to other nations. Despite the nominal growth in yen terms, Japan's economy has shrunk considerably in dollar terms due to currency devaluation.

In contrast to Japan's demographic challenges and reliance on external demand, India presents a contrasting narrative with its burgeoning population and potential for sustained growth. With a significant portion of its population in the working age bracket, India is expected to drive innovation and productivity in the long term. The Indian government's initiatives to attract foreign investment and bolster domestic manufacturing further contribute to its growth prospects.

While Japan aims to enhance its semiconductor industry and maintain stable living standards amid a shrinking population, the need for a larger workforce to sustain economic growth remains evident. The integration of more foreign workers and the development of technology-intensive industries domestically are among the strategies considered to address these challenges. Despite Japan's slip in global economic rankings, its focus on stability and adaptation reflects a nuanced approach to economic resilience.