Germany displaces Japan, nears third position

According to the latest International Monetary Fund (IMF) World Economic Outlook (WEO), Germany is set to become the third biggest economy in the world by the end of 2023, displacing Japan which had managed to stay in the top three slot despite its economic woes since the 1990s. Japan stands at the third position in the global economic pecking order with a GDP of $4.2 trillion behind the United States ($27 trillion) and China ($17.7 trillion). The IMF report says that the German GDP is projected to stand at $4.4 trillion in 2023, which will take it past Japan. Meanwhile, India ($3.7) continues to be racing towards the third position by 2030, says the report.

Japanese Prime Minister Fumio Kishida has pushed forward an economic package this week which includes cash transfer to the lower middle class to cope with the cost-of-living crisis and also to reduce income tax rates. The opposition parties have slammed Kishida’s proposals that this will only increase Japan’s deficit which stands at a historic high, but the Japanese prime minister thinks that his proposal is the only way to fight deflation that has dogged the country’s economy for a quarter century and more.

There has been some cheer as the economy grew at an annualised rate of six per cent in the second quarter, and it is believed that this has been due to the depreciation of the yen against the dollar quite steeply, and this has made Japanese exports cheaper. There has been an increase in tourist footfall since the end of the pandemic. But inflation has been higher at more than 3 per cent compared to the Bank of Japan (BoJ) target of two per cent.

The decline of Japan from the top ranks is a conspicuous development in this century. Till 2010 Japan has been the second biggest economy after the United States. But it has been overtaken by China. And now it stands to lose its position first to Germany and in a few years’ time to India. Japan faces the twin problems of an ageing population and also dwindling numbers. Economic experts have always felt that one of the characteristics of a developed economy is a reduction in population and also its greying segment. Japanese politicians have not found an answer to this problem. And there has been no longer-term planning to address these issues. Japan does not have an immigration policy.

Japan and Germany have been the economic miracles of the post-Second World War, rising from the ashes of defeat and becoming the leading economic powers in the world. While Germany as member of the European Union (EU) and with its mainly Turkish immigrant population, it is countering the trend in demographic decline and the increase in the older segment of the population. For nearly 50 years since the 1960s, the two countries have shown marvelous growth in the economy and domination in the world of technology. The two countries are still in the forefront of scientific research and technological breakthroughs.

But China and India, which were the economic laggards with their huge population and low economic growth, have picked up momentum since the turn of the century, and they have become veritable centres of economic growth. And with their huge population, their domestic sector had become as crucial as the export sector. Both India and China have become the large consumer markets which attract foreign investments. India and China have proved that the population numbers are not a negative burden and have their own advantages when it comes to growing the economy and consuming a large chunk of it in the country. Many of the economic ideas about growth that had been propounded in the West have lost their credibility because despite odds, India and China had forged ahead.