Japan's Economy Drops to 4th Largest Globally as Challenges Mount

Defense News ,Japan :- In a recent development, Japan's economy has slipped to the world's fourth-largest position, trailing behind Germany, after experiencing a contraction in the last quarter of 2023. The government's report, based on Cabinet Office data on real GDP, reveals a 0.4% annual contraction in the October to December period, marking two consecutive quarters of decline—a key indicator of a technical recession.

Although the economy grew by 1.9% for the entirety of 2023, this setback underscores Japan's struggle to maintain its economic prowess. Once the second-largest economy until 2010, Japan has faced challenges such as a declining population, lagging productivity, and competitiveness, contributing to its relative weakening.

A significant factor in Japan's descent to fourth place is the depreciation of the yen, impacting comparisons of nominal GDP in dollar terms. Despite being historically hailed as an "economic miracle" after World War II, Japan's economic growth has been moderate for the past 30 years, particularly after the collapse of its financial bubble in 1990.

Both the Japanese and German economies have traditionally relied on strong small and medium-sized businesses with solid productivity. However, recent data indicate a contraction in both economies, with Germany experiencing a 0.3% decline in the last quarter of the previous year.

The challenges faced by Japan are echoed in other developed nations like Britain, which reported a 0.3% contraction in its economy for October-December, entering a technical recession. Japan's shrinking and aging population contrasts with Germany's growth, fueled in part by immigration, compensating for a low birth rate.

Experts predict that Japan's diminishing economic influence on the global stage is likely, given the current realities. Tetsuji Okazaki, a professor of economics at the University of Tokyo, notes that even sectors where Japan once held a strong position, such as the auto industry, are now under threat with the rise of electric vehicles.

The gap between developed and emerging nations is narrowing, with India anticipated to overtake Japan in nominal GDP in the coming years. The U.S. remains the world's largest economy, with China following closely. India, with a GDP of about $3.7 trillion, is growing rapidly at approximately 7%.

Addressing Japan's labor shortage, immigration is suggested as an option, but the country's reluctance to accept foreign labor, except for temporary stays, has been criticized for discrimination and lack of diversity. Robotics are gradually being deployed, although not yet at a scale to fully compensate for the labor shortage.

Stagnating wages, coupled with businesses investing heavily in faster-growing overseas markets, contribute to Japan's sluggish growth. Private consumption has fallen for three consecutive quarters, and forecasts indicate a slowdown in GDP growth from 1.9% in 2023 to around 0.5% this year, reflecting the challenges ahead.