International Knowledge Bureau: First there was Germany and then there was India. Will Japan’s GDP, which is hit by a pinch, fall again and again?

　　China News Service, February 15 (Zhang Aolin, Meng Xiangjun) On the 15th local time, preliminary statistical results released by the Japanese Cabinet Office showed that Japan’s real gross domestic product (GDP) will increase by 1.9% year-on-year in 2023, reflecting rising prices. The nominal growth rate was 5.7%. Preliminary statistics on Japan's GDP in 2023 are 591.482 trillion yen, approximately US$4,210.6 billion, which is lower than Germany's US$4,456.1 billion. Japan's nominal GDP dropped from the third in the world to the fourth in the world, and was overtaken by Germany.

　　Faced with the increasingly serious trend of population aging and the slowdown in industrial innovation, Japan's economy has been in a weak state for a long time. The direct reason for being surpassed by Germany this time seems to be an accidental exchange rate issue, but the underlying reasons are becoming increasingly apparent. In addition, Japan may have more than one "pot" of cold water poured on it. The International Monetary Fund (IMF) predicts that in 2026, Japan's GDP is likely to be surpassed by India and further fall to fifth in the world. If it comes true, Japan will be even worse off. How can the economic decline be reversed?

　Japan’s GDP is overtaken

　　The necessity behind chance

　　For Germany, Japan has always been a focus of its economic development. After the end of World War II, West Germany's economy rose rapidly and once ranked second in the world.

　　However, as Japan's economy took off in the 1960s, Japan surpassed West Germany at the time in 1968 and became the world's second largest economy. Since then, the economic gap between the two countries has gradually widened. By 2000, Japan's economic size had jumped to 2.5 times that of Germany, making it difficult for Germany to keep up.

　　Times have changed, and by 2024, Japan’s “myth” has finally been overtaken by Germany.

　　However, the current German economy does not seem to have the encouraging signs of "surpassing Japan". In mid-December 2023, Markus Steilemann, chairman of the German Chemical Industry Association, expressed a sense of crisis, "We are in a deep and long trough." More and more companies in Germany predict that the business environment will not improve before 2025.

　　Is the German economy, directly affected by the Ukraine crisis, really growing? In fact, this is the long-term decline of Japan's economy.

——Exchange rate becomes a key factor

　　In October 2023, the IMF issued a forecast that Germany's GDP would surpass Japan's. At that time, the yen-dollar exchange rate had been hovering near 150, almost falling to a 33-year low. Although it rebounded slightly around January 2024, it subsequently fell to near the 150 mark.

　　"Nihon Keizai Shimbun" pointed out that this time Germany's GDP caught up with Japan's, which happened when the economies of both countries were in a state of low growth. Affected by high inflation caused by the Ukraine crisis and the European Central Bank's rapid interest rate hikes, Germany's real growth rate in 2023 will be negative 0.1%. Statistics from the German Economic Advisory Council show that Germany’s potential growth rate, a symbol of economic strength, will be 0.4% in 2022, even lower than Japan’s 0.5%.

　　Japan's Mitsubishi UFJ Research Institute also analyzed that in addition to the depreciation of the yen, rising prices and the appreciation of the euro against the US dollar also pushed up German GDP. Assuming that the price factors in the euro exchange rate and the nominal GDP of Japan and Germany are constant, and the exchange rate between the US dollar and the Japanese yen is around 1:132 before the sharp depreciation of the Japanese yen, the GDP of Japan and Germany should be at the same level.

——"Struggling in the downturn of the economy"

　　"In the late 1980s, the Japanese were wealthier than Americans, but now their income is lower than that of the British." This is the British Broadcasting Corporation (BBC)'s description of Japan's current economic situation on January 24. "Japan has been struggling with a sluggish economy for decades and has been hesitant to move forward amid strong resistance to change and a stubborn attachment to the past," the report noted.

　　Although there is some chance of being overtaken by Germany this time, Japan's economy collapsed after experiencing the "bubble burst" in the late 1980s. "Nihon Keizai Shimbun" pointed out that for more than 20 years, Japan has relied solely on monetary easing and fiscal stimulus to stimulate demand, and the metabolism of its industrial structure has been slow. During this period, the production efficiency of major European and American countries has improved a lot.

　　One of the main reasons for Japan's GDP to be overtaken this time - the depreciation of the yen - is also because the Japanese economy has been unable to increase its growth power.

　　The report also cited data from the Organization for Economic Cooperation and Development (OECD), pointing out that in terms of per capita annual working hours, Japan will have 1,607 hours in 2022, 20% more than Germany. World Bank data for 2022 shows that Japan’s real GDP per capita for the working-age population aged 15 to 64 is about US$61,600, which is 10% less than Germany.

　　In other words, Japan's labor force works for relatively longer hours, which does not produce better results.

　　This is also reflected in the economic data. Japan's "Asahi Shimbun" pointed out that in the long term, Germany's economic growth rate clearly exceeds Japan's, and the gap in economic size between the two countries is also shrinking year by year. According to IMF data, the average real economic growth rate of the two countries from 2000 to 2022 was 1.2% for Germany and only 0.7% for Japan.

　　There is an "ambush" in front and a "pursuing army" behind

　　Will the next "be surpassed" come soon?

　　Analysts believe that the continued economic decline is expected to further decline Japan's global influence. For Japan, continuous efforts to improve production efficiency are almost the only way to achieve "reversal".

　　Japan’s former Minister of Economy, Trade and Industry Yasunari Nishimura once responded to the possibility that GDP may be surpassed by Germany, saying, “Japan’s growth potential has indeed fallen behind and is still sluggish.” Nishimura said that Japan hopes to regain the economic status it "lost" in the past 20 or 30 years through a package plan.

　　However, in the face of increasingly severe birthrate decline and aging, it is not easy to improve labor productivity, which is at a low level.

　　"Nihon Keizai Shimbun" believes that both Japan and Germany are aging, and the downward pressure on the economy caused by labor shortages is huge. In order to accelerate growth again, Japan needs to continue to tap the potential of older workers by thoroughly realizing equal pay for equal work. In addition, it is also important to further attract foreign investment.

　　However, the outlook does not seem promising.

　　The IMF predicts that Japan's next "overtaken" may come soon: India will become the world's fourth largest economy in 2026, and Japan's total GDP will decline again by then, falling to the fifth in the world.

　　If the prediction comes true, it will be like pouring cold water on the Japanese economy, which is already struggling in the quagmire. (over)