Japan Is No Longer World's 3rd-Largest Economy

It's been overtaken by Germany and will likely slip behind India in 2026
By Newser Editors and Wire Services
Posted Feb 15, 2024 7:21 AM CST
Japan Loses Spot as World's 3rd-Largest Economy
Commuters walk in a passageway during a rush hour at Shinagawa Station Wednesday, Feb. 14, 2024, in Tokyo.   (AP Photo/Eugene Hoshiko)

Japan's economy is now the world's fourth-largest after it contracted in the last quarter of 2023 and fell behind Germany. The government reported the economy shrank at an annual rate of 0.4% in October to December, according to Cabinet Office data on real GDP released Thursday, though it grew 1.9% for all of 2023. It contracted 2.9% in July-September. Two straight quarters of contraction are considered an indicator an economy is in a technical recession. Japan's economy was the second largest until 2010, when it was overtaken by China's. Japan's nominal GDP totaled $4.2 trillion last year, while Germany's was $4.4 trillion, or $4.5 trillion, depending on the currency conversion, the AP reports.

A weaker Japanese yen was a key factor in the drop to fourth place, since comparisons of nominal GDP are in dollar terms. But Japan's relative weakness also reflects a decline in its population and lagging productivity and competitiveness, economists say. Japan was historically touted as "an economic miracle," rising from the ashes of World War II to become the second largest economy after the US. It kept that going through the 1970s and 1980s. But for most of the past 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 solid productivity. Germany's economy contracted 0.3% in the last quarter of last year, as did Britain's. The UK reported Thursday that its economy entered a technical recession in October-December. The US remains the world's largest economy by far, with GDP at $27.94 trillion in 2023, while China's was $17.5 trillion. India's is about $3.7 trillion but growing at a sizzling rate of around 7%. The Guardian reports that according to International Monetary Fund projections, India's economy will overtake Japan's in 2026 and Germany's in 2027. (More Japanese economy stories.)

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