Germany Surpasses Japan as the World’s Third-Largest Economy After Japan Slips into Recession

Japan’s economy contracted by an annualized rate of 1.2% in the last three months of 2023, marking the second consecutive quarter of negative growth and pushing the country into a technical recession. The decline was mainly driven by a slump in consumer spending, which fell by 3.1% as households face higher taxes, rising inflation, and the impact of the Omicron variant of COVID-19. Japan also suffered from supply chain disruptions, labor shortages, and weak exports, which weighed on its industrial output and business confidence.

Germany’s GDP Grows by 0.6%

Germany’s economy, on the other hand, expanded by 0.6% in the fourth quarter of 2023, beating expectations and showing resilience amid the pandemic. The growth was supported by strong domestic demand, especially from the construction and services sectors, as well as robust foreign trade. Germany also benefited from its high vaccination rate, its fiscal stimulus measures, and its diversified and competitive export base.

As a result of the contrasting economic performances, Germany overtook Japan as the world’s third-largest economy in terms of nominal gross domestic product (GDP) in 2023, according to the International Monetary Fund (IMF). Germany’s GDP reached $5.12 trillion, while Japan’s GDP fell to $4.87 trillion. This is the first time since 1968 that Japan has lost its position as the third-largest economy, after being surpassed by China in 2010.

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Implications and Outlook

The shift in the global economic ranking reflects the different challenges and opportunities that Germany and Japan face in the post-pandemic era. Germany, as the largest and most influential member of the European Union (EU), has a key role to play in leading the region’s recovery and integration, as well as addressing the issues of climate change, digitalization, and geopolitical tensions. Japan, meanwhile, needs to overcome its structural problems of aging population, low productivity, and high debt, as well as to revitalize its relations with its neighbors and allies in Asia and beyond.

The IMF projects that both Germany and Japan will return to positive growth in 2024, with Germany growing by 2.1% and Japan growing by 1.6%. However, the outlook remains uncertain and depends on the evolution of the pandemic, the effectiveness of the policy responses, and the pace of the global recovery.