Japan slips to 4th largest economy, trails Germany in recession

Japan has lost its position as the world’s third-largest economy to Germany after slipping into recession at the end of 2023. Government data released on Thursday showed that Japan’s gross domestic product (GDP) shrank for a second consecutive time in the fourth quarter of 2023, pushing the Asian country into an unexpected recession.

Preliminary data from the Japanese Cabinet Office revealed that Japan’s GDP fell an annualized 0.4% in the October-December quarter, marking the second straight quarter of decline after a 3.3% annualized drop in the previous three-month period. The fourth quarter’s numbers were well below economists’ forecasts of around 1.1% growth.

Private consumption, which accounts for more than half of Japan’s economic activity, contracted by 0.2% in the fourth quarter as households tightened discretionary spending due to rising living costs. With a nominal GDP of $4.2 trillion in 2023, Japan’s economy is now smaller (in U.S. dollar terms) than Germany’s $4.4 trillion, despite the latter’s economy shrinking by 0.3% last year.

The conversion value of one U.S. dollar to the Japanese Yen is 150.18, the weakest level the Japanese currency has hit since briefly breaching the 150 mark in November last year. Two consecutive quarters of GDP decline technically mean Japan is in a recession. However, some economists have raised concerns about the “poor quality” of Japan’s GDP data, which is “often subject to large revisions.”

India is expected to overtake both Germany and Japan as the world’s third-largest economy sometime later this decade, according to analysts from various entities, including S&P Global and the World Economic Forum. Indian Finance Minister Nirmala Sitharaman highlighted the federal government’s goal of growing India into a $5 trillion economy before the end of this decade while unveiling the country’s annual budget earlier this month.