Source image: Tokyo, Japan. Image/IC photo
After more than a decade of steadily ranking third in the world, Japan's GDP may be surpassed by Germany and drop to fourth place.
According to the Global Times citing Japan's Daily News on the 24th, the latest report from the International Monetary Fund (IMF) predicts that Japan's nominal gross domestic product (GDP) will be surpassed by Germany in 2023, slipping from third place in the world to fourth place in the world.
This is not the worst, as the IMF also predicts that India will become the world's fourth largest economy by 2026, while Japan will decline to the fifth largest in the world between 2026 and 2028.
No minimum, only lower
It is reported that the above forecast was made by the IMF in its World Economic Outlook released in early October. The forecast states that Japan's nominal GDP will decrease by 0.2% year-on-year to $4.23 trillion in 2023, while Germany will increase by 8.4% to $4.43 trillion.
In this way, in nominal GDP terms, the size of Japan's economy will be surpassed by Germany, dropping from its current third place in the world after the United States and China to fourth place in the world.
From 1968 when the Gross Domestic Product (GNP) surpassed West Germany to 2000, Japan's economy remained the second largest in the world for a long time, reaching a peak of $4.97 trillion in 2000. At that time, its economic size was 2.5 times that of Germany and 4.1 times that of China.
In 2010, China surpassed Japan and ranked second in the world. For more than 10 years since then, Japan has been ranked third in the world. If the IMF's predictions are accurate, this will be Japan's lowest nominal GDP ranking since the 21st century.
However, "there is no minimum, only lower": The IMF predicts that as India's population rapidly increases, its nominal GDP will surpass Japan and become the world's fourth largest economy in 2026. At that time, Japan's world ranking in this number will further decline to fifth in the world.
On October 23rd, Japanese Prime Minister Fumio Kishida delivered a policy speech at a plenary session of the House of Representatives, stating that he would implement economic policy reforms and reduce the burden on the Japanese people in a high price environment by returning some taxes. Image/IC photo
A barometer that can be large or small
The so-called "nominal GDP" refers to the GDP that has not been adjusted for inflation, indicating the level of economic activity in a country or region, including changes in the prices of goods and services. It is often used as an indicator to measure the size of a country's economy.
Japan's "foam economy" burst in the late 1990s. In March 2001, Japan officially admitted for the first time that it was in a "moderate deflation state", and since then it has entered a long-term stagflation situation. In domestic currency terms, Japan's nominal GDP has grown by only 10% since 2000, compared to 90% in Germany, 160% in the United States, and 1160% in China during the same period.
In view of this, most economists believe that the sluggish nominal GDP growth is consistent with other parameters, reflecting the sluggish trend of Japan's economy after the "Abenomics" started and ended, as well as the difficulty of Japan's economy returning to the upward path in the context of declining population growth rate and labor force, as well as sluggish domestic consumption and exports.
The IMF will regularly review the equity quotas of each member country based on economic scale, using GDP and other data. Quotas not only determine how much capital a member country needs to pay, but also largely determine its voting rights in the IMF.
The current quota was set in 2010, with Japan accounting for 6.5%, second only to the United States at 17.4%, and ranking second in the world, slightly higher than China's 6.4%.
Kyodo News Agency of Japan quoted authoritative sources from the IMF as saying that a new adjustment of IMF member states' equity quotas may be carried out by the end of this year. According to the current calculation formula, the equity ratios of the United States and China will be changed to 14.8% and 14.4% respectively, becoming the new round of "champions and runners up". And Japan will decline to fifth place after the United States, China, Germany, and the UK.
Kyodo News Agency stated that Japan has attempted to demand that IMF member countries adjust their capital in a way that does not affect their current rankings, and has attempted to win over the United States as a "helper". But China and other rapidly growing countries require this ratio to reflect their economic size. Obviously, in the context of the international discourse power of emerging countries being no longer commensurate with their economic growth, Japan's attempt is somewhat pale.
It can be seen that although the change in nominal GDP ranking is not the only parameter to measure the rise and fall of Japan's economy, the decline in Japan's economic strength has been determined by various factors and is a trend that is difficult to change for a considerable period of time.
Signal distortion in nominal GDP
However, many experts also point out that nominal GDP is a parameter with high distortion and interference from other factors. In the current situation, its distortion is more easily amplified, so there is no need to be alarmed about the fluctuations in this value.
Kyodo News Agency pointed out that the "distortion effect" of exchange rate factors on nominal GDP is enormous. In the current situation where the Federal Reserve continues to implement interest rate hikes and the US dollar dominates global trade finance, this "distortion effect" has a vastly different impact on different economies.
Taking the ranking of Germany and Japan based on the IMF's nominal growth rate forecast as an example: in 2023, the IMF expects Japan's nominal GDP to be $4.23 trillion, a decrease of 0.2%; In Germany, it was $4.43 trillion, an increase of 8.4%.
Some German economists have pointed out that the overall economic situation in Germany in 2023 is actually lackluster, and the reason for such a huge contrast is due to the significant decline in the yen's exchange rate against the US dollar over the past year. Recently, the US dollar has hit another 150 mark against the Japanese yen, with an average of around 131 in 2022. The further widening of the interest rate gap between Japan and the United States has driven the Japanese yen down significantly, while the exchange rate between the euro and the US dollar has remained almost unchanged during the same period.
Not only that, nominal GDP will also increase synchronously with inflation rate. This year, the annualized increase rate of Japan's consumer price index is about 3%, while in Germany during the same period, the figure is much higher. At the beginning of the year, Germany's inflation rate reached 9%, and at its lowest point, it was also above 4%. It is obvious that due to the inflation rate, there is inevitably distortion in the nominal GDP data.
It can be seen that the IMF's predictions and GDP parameters need to be treated correctly, with more realistic perspectives on production, life, society, and people's livelihoods, truly experiencing the economy, and playing less dazzling "magic".
Author/Tao Shortfang (columnist)
Proofreading/Liu Jun