Home » Japan’s GDP ranks fourth in the world, overtaken by Germany with two-thirds of the population Rising prices, wages not rising…Where is the exit?: Tokyo Shimbun TOKYO Web

Japan’s GDP ranks fourth in the world, overtaken by Germany with two-thirds of the population Rising prices, wages not rising…Where is the exit?: Tokyo Shimbun TOKYO Web

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Japan’s GDP ranks fourth in the world, overtaken by Germany with two-thirds of the population Rising prices, wages not rising…Where is the exit?: Tokyo Shimbun TOKYO Web

The Cabinet Office announced on the 15th preliminary figures for gross domestic product (GDP, seasonally adjusted) for 2023. Nominal GDP, which is considered to be close to the actual economic situation, increased by 5.7% from the previous year, and the actual amount was 591 trillion 4820, the highest on record. It was 100 million yen. In terms of dollars used for international comparisons, it was 4.2106 trillion dollars, falling from 3rd to 4th place in the world, being overtaken by Germany. Some believe that if the yen continues to weaken, it will be overtaken by India, which ranks fifth in 2025. (Masayoshi Yamanaka)

◆Weak yen, the actual amount of GDP decreases in dollar terms

In 1968, Japan overtook what was then West Germany and became the world‘s second-largest economic power after the United States. It was then overtaken by China in 2010.

The reason why Japan was overtaken by Germany is largely because the actual value of GDP decreased in dollar terms due to the depreciation of the yen and the appreciation of the dollar. The rise in prices in Germany due to soaring energy prices following Russia’s invasion of Ukraine also had an impact. Nominal GDP is calculated based on actual transaction prices, so it increases as prices rise. Germany’s nominal GDP in 2023 was $4.4561 trillion.

◆In 2025, it will be overtaken by India and fall to 5th place

The International Monetary Fund (IMF) predicts that India’s nominal GDP will surpass Japan’s in 2026 and Germany in 2027. However, Hideo Kumano, Chief Economist at Dai-ichi Life Economic Research Institute, pointed out that “If (Japan’s) low growth and yen depreciation continue, there is a risk that next year it will be overtaken by India and fall to fifth place.”

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At the same time, real GDP for the October-December period of 2021 was announced, decreasing by 0.1% from the previous quarter, marking the second consecutive quarter of negative growth. Annualized decrease of 0.4%. Personal consumption decreased by 0.2% from the previous quarter due to sluggish clothing sales due to the warm winter. Capital investment decreased by 0.1%. On the other hand, exports increased by 2.6% compared to the previous quarter, with contributions from inbound consumption, which is classified as export in statistics.

Cabinet Office (file photo)

Nominal GDP for the October-December period increased by 0.3% compared to the previous quarter, or an annualized increase of 1.2%. Real GDP increased by 1.9% in 2023, marking the third consecutive year of positive growth along with nominal GDP.

◆Personal consumption is sluggish…Wage increases are necessary for small and medium-sized enterprises

Japan’s decline in nominal GDP to fourth place is not only due to the weakening yen. In the quarter, real GDP recorded negative growth for the second consecutive quarter, highlighting economic weaknesses such as sluggish personal consumption due to prolonged high prices. In order to turn to positive growth, wage increases must spread to small and medium-sized enterprises, which account for 70% of employees. (Eriko Oshikawa, Shinya Harada)

Personal consumption, which accounts for over 50% of GDP, has declined for the third consecutive quarter. Although the rate of increase in the consumer price index in December 2023 slowed for the second consecutive month, real wages in 2023 according to the monthly labor statistics survey decreased by 2.5% from the previous year. Wage increases continue to be unable to keep up with price increases. According to the Ministry of Internal Affairs and Communications’ household budget survey of households with two or more people, the average monthly consumption expenditure per household in 2011 was negative for the first time in three years, suggesting that the purchasing power of households is declining.

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Wads of Japanese yen (file photo)

Although the spring labor union in 2023 resulted in the highest wage increase in 30 years, it is undeniable that the wage increase was centered on large corporations. According to a survey by the Ministry of Health, Labor and Welfare on wage increases, the level of wage increases per employee in 2023 was 4% for companies with 5,000 or more employees, but only 2.9% for companies with 100 to 299 employees.

Tsuyoshi Ueno of the Nissay Research Institute said, “The momentum of price increases is strong, leading to stagnation in consumption.The biggest key to sustainable growth of the Japanese economy is wage increases.Especially for small and medium-sized enterprises, which have been lagging behind until now. It is important to raise wages.” On top of that, he believes, “Given that small and medium-sized enterprises already have a high labor share, it is not easy to raise wages sufficiently.”

◆Low productivity compared to Germany is also an issue

Starting in June, the government plans to boost consumption through income tax and resident tax cuts, but another challenge is to improve labor productivity, which is lower than Germany, which has only two-thirds of the number of employed people in Japan. Hideo Kumano of the Dai-ichi Life Economic Research Institute emphasized, “Even though the income tax cut will increase demand, the supply capacity will not increase.We need a structural growth strategy to boost the economy.” He said it was necessary to strengthen the overseas business of Japan’s service and retail industries through electronic commerce (EC) and other means.

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