According to the International Monetary Fund (IMF) forecast, Japan's nominal GDP will drop from third to fourth in the world in 2023, while Germany, now the fourth largest country, will become third.
The latest forecast data from the IMF shows that Japan's GDP this year is about $4.23 trillion, while Germany will reach $4.43 trillion by the end of the year. The two countries have officially exchanged positions on the global GDP ranking. After experiencing thirty years of decline, the Japanese economy has suffered another heavy blow and finally lost its position as the third largest economy in the world. Considering that India is now the fifth largest economy, it is almost certain that Japan will be surpassed in the future. Is it true that Japan has not been able to do so?
If you think that way, it's a big mistake, and you may even fall into a daze because the messages you see online cannot match at all.
In 2022, Japan's GDP ranked third globally and Germany ranked fourth. The prerequisite for the exchange of positions between the two sides in 2023 is Japan's economic recession and Germany's rise; On the contrary, if Japan's economy rises in 2023 and Germany declines, it is unlikely that the latter will surpass the former, but rather that Japan will widen the gap with Germany. Isn't this logic difficult to understand? But the strange thing is that the news is mismatched.
The IMF predicts that Germany's GDP will surpass Japan's this year. Let's take a look at the performance of the German economy this year. The central bank website cited a report from the Bundesbank stating that Germany's economy remained sluggish in the third quarter of this year.
I see clearly, it's a "sustained" downturn, not just a recent downturn. In other words, the German economy has been in a sluggish state since 2023. Germany has not yet released GDP data for the third quarter, with a decrease of 0.1% month on month in the first quarter and a zero month on month growth rate in the second quarter. So far, the German economy has stagnated.
On the other hand, Japan is completely different. In the second quarter, its GDP grew by 1.5% month on month, or an annualized growth rate of 6%. Although it is not comparable to our GDP growth rate, considering that Japan is already a developed country, the economic growth rate in the first half of the year is satisfactory. In addition, you should have heard about the news that the Japanese economy has gradually emerged from its "lost thirty years" and returned to growth since the third quarter, right?
Most people are starting to get confused when they see this.
Last time, Xiao De ranked third in the exam, but this time he made progress. Last time, Xiao De ranked fourth, but this time he fell back. When the teacher announced his grades, he said Xiao De was third and Xiao De was fourth in the exam. That's almost what it means, but it's obviously not in line with common sense. Is it the teacher (IMF) talking nonsense?
Not really, the problem lies in nominal GDP.
The nominal GDP is calculated based on the wealth created by a country throughout the year at current prices, and then converted into US dollars for ranking. There are two key factors involved, one is price, and the other is exchange rate. These two factors together play a big game of "old three changing people".
Let's first talk about price factors.
Assuming that Company A produces 10000 mobile phones in 2022, with an average selling price of 5000 yuan each, Company A has created a GDP of 50 million yuan; In 2023, the production capacity will be adjusted, and only 9000 identical mobile phones will be produced, but the price of each phone will rise to 6000, and the GDP created by Company A will become 54 million yuan.
Although the number of mobile phones produced in 2023 is 1000 fewer than in 2022, the increase in mobile phone prices has caused Company A to create an additional 4 million yuan in GDP. What is the problem? Due to the fact that rising prices have masked the decline in production capacity, GDP has become "inflated" due to rising prices.
Europe is currently experiencing severe inflation, with the inflation rate dropping slightly in September but still reaching 4.3%. Prices in Japan are relatively stable, with a core CPI of 2.8% in September.
Therefore, Germany's nominal GDP benefits much more from the "false prosperity" brought about by rising prices than Japan's.
A similar situation also occurs in the comparison of GDP between China and the United States. Although our actual GDP growth rate has always been higher than that of the United States, the super high prices in the United States over the past year have continuously widened the gap between its nominal GDP and China.
The increase in GDP caused by prices is only illusory, otherwise Venezuela and Zimbabwe would have long been among the top ten economies in the world, and even one day could have become the countries with the highest GDP.
After discussing inflation, let's talk about the exchange rate factor, which cannot be underestimated.
Each country uses its own currency when calculating GDP, such as China using the Chinese yuan, Germany using the euro, and Japan using the Japanese yen. In order to compare and convert to the same currency, it is usually done by converting to US dollars before comparison, which involves the issue of exchange rate loss. Let me give an example.
Assuming that the GDP of Country B in 2022 is 1 trillion and the average exchange rate against the US dollar last year was 5, then the GDP of Country B in 2022 is 200 billion US dollars; In 2023, the economy of Country B was good, with a GDP of 1.1 trillion yuan expressed in domestic currency. This year, the US dollar was strong, and the exchange rate depreciated to 6. According to calculations, the GDP was 183.3 billion US dollars.
Although the actual wealth created by Country B in 2022 is less than that in 2023, it has increased by over 10 billion after being converted into US dollars. This is due to currency depreciation and is not related to the actual economic development of Country B.
Since the beginning of this year, the US dollar has been very strong, with various currencies depreciating against it to varying degrees. The Japanese yen has depreciated more severely compared to the euro, and is now about to break through the 150 mark. This has led to "losses" in both Germany and Japan's GDP calculated in local currency when converted into US dollars, but Germany's "losses" are significantly smaller than Japan's.
In summary, surpassing Japan to become the world's third-largest economy is somewhat unfair, especially when the German economy is in a downturn and Japan is emerging from difficulties, which is even more ironic.
Now I need to make revisions to the title of this article.
From a practical economic perspective, Japan has not only not been overtaken by Germany but has further widened the economic gap between the two countries, so there is no so-called "turnaround". From the perspective of nominal GDP that includes exchange rates and prices, as long as Germany's CPI drops, Japan will naturally return to third place. This is actually the situation that Germany most wants to see now, because sustained inflation has caused huge harm to European countries, including Germany. Solving this problem is far more important and urgent than numerical decency.
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