Germany Becomes World’s Third-Largest Economy, as Japan Slips into Recession 

Germany has overtaken Japan as the world’s third-largest economy, following Japan’s unexpected slip into recession. Japan’s economy contracted by 0.4 per cent in the last quarter of 2023, leading to a technical recession. With a GDP of $4.5 trillion, Germany now holds the third position globally, ranking only behind the United States and China.

The unexpected shift in economic dynamics reflects not only Germany’s economic heft but also the impact of Japan’s declining fortunes. Notably, there was a sharp fall in the yen against the dollar, which impacted Japan’s nominal GDP in dollar terms. Despite Japan’s 1.9 per cent nominal GDP growth, Germany’s GDP of $4.5 trillion edged past Japan’s $4.2 trillion.

Germany faced its economic challenges, with a 0.3 per cent shrinkage in 2023 attributed to “rising interest rates and weaker domestic and foreign demand,” as reported by the Federal Statistics Office. However, the International Monetary Fund had foreseen this transition and projected Germany’s triumph over Japan in 2024 due to the yen’s continual decline against the dollar.

According to AFP, the yen dipped more than 18 per cent in 2022 and 2023 against the dollar including around seven per cent last year in part because the Bank of Japan unlike other major central banks — has maintained negative interest rates.

Japan and Germany are both export-dependent economies and face challenges, but Japan is grappling with a more severe shortage of workers due to a declining population and low birth rates. On the global economic horizon, India is anticipated to surpass both nations in output in just a few years.

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