In Tokyo, Japan. Visual China.
Will German GDP be super-Japan this year? Recently, a projection by the International Monetary Fund (IMF) has drawn public attention.
IMF forecast data show that, in current dollars, Japan ' s nominal gross domestic product (GDP) will be surpassed by Germany in 2023, falling from third to fourth in the world.
Nominal GDP is known to describe the total market value of domestically produced products and services at current market prices, adjusted for inflation.
News (www.thepaper.cn) notes that the above nominal GDP projections of the IMF are derived from the conversion of the national currency into United States dollars using market exchange rates (average annual rate).
Source: IMF official network. The news.
As can be seen, the yen has depreciated significantly against the United States dollar since this year. As at 26 October, the euro had depreciated by about 1.5 per cent against the United States dollar and the yen by about 15 per cent against the dollar since the current year.
It is noteworthy that in the latest World Economic Outlook released by the IMF on 10 October, the IMF also projected an annual growth rate of 2.0 per cent in real GDP in Japan and -0.5 per cent in Germany in 2023. The data also show that, in terms of purchasing power parity, Japan ' s global share of GDP is expected to be 3.716 per cent in 2023, still higher than Germany ' s 3.168 per cent.
Source: IMF official network. The news.
How can it be understood that while Japan ' s economy is growing faster than Germany ' s, nominal GDP at current dollar prices has been exceeded by Germany? Is the position of Japan's global economy “3rd” really to be replaced by Germany?
The value of nominal GDP in United States dollars is affected by changes in prices and market exchange rates
According to an analysis of the press carried out by Professor Wang Jinbin, Deputy Secretary-General and Vice-President of the Party Committee of the Faculty of Economics of the People ' s University of China, according to the IMF estimates, the nominal GDP of Germany exceeds Japan ' s nominal GDP, partly because of price. German prices are high and Japanese prices are relatively low. On the other hand, market exchange rate movements are responsible.
“As the above-mentioned IMF estimates are based on market exchange rates (MERs), Germany uses the euro, which has not depreciated against the United States dollar this year, and the yen has so far devalued the dollar by 15 per cent, it is normal that Japan's GDP at this rate is 15 per cent smaller than Germany's, so that in this case Japan will be exceeded by Germany, because of the differences between the two countries in the past, but not very large.”
Professor, Shanghai School of Advanced Finance, Shanghai University of Transport, and former Senior Economist of the Federal Reserve, Hu Jian, informed the news that countries around the world are used to measuring their GDP in two ways. First, it is translated into United States dollars at the rate of exchange prevailing in that year. The latter is primarily intended to facilitate the comparison of the total output of countries and is more influenced by changes in exchange rates.
Low interest rates and a loose monetary policy led to a significant depreciation of the yen
Why did the yen depreciate against the United States dollar much more than the euro this year?
Wang Jinbin stated that, mainly as a result of the differences in monetary policy per se, Germany’s euro zone was actually characterized by high inflation, so that the European Central Bank (ECB) had increased interest rates ten times in a row, with the current policy rate of 4.5 per cent, while Japan had been liberal and maintained a negative interest rate of -0.1 per cent. At the same time, the Central Bank of Japan has increased the range of floating interest rates on ten years of national debt, such as a ceiling rate of 1.0 per cent. As a result, low interest rates and a liberal monetary policy led to a sharper depreciation of the yen, mainly because of Japan’s long-term deflation, low prices and a bad economy, and its desire to achieve better economic growth through currency devaluations, leading to higher animal prices.
“A policy upheld by the Central Bank of Japan is that economic growth takes precedence over exchange-rate stability, that growth is more important, and that exchange-rate stability is more subordinate, so that Japan's economic growth performance this year is still possible, but the exchange-rate depreciation is significant and is directly linked to its central-bank philosophy.”
Wang Jinbin stressed that the Japanese economy could not be judged after Germany simply by the MER conversion. With the possibility of further depreciation of the yen less likely, Japanese inflation now at around 3 per cent, and rising salaries, the end of Japan’s low-interest-rate monetary policy is sooner or later. Since then, the yen’s depreciation against the United States dollar will have contracted, apparently at market exchange rates, and Japan’s nominal GDP will have risen. “At the same time, Germany's GDP performance has actually been relatively poor since this year, as Germany may have the risk of negative growth in the larger economies, on the one hand through economic contraction and, on the other hand, through its past low energy costs, with a very high cost shock.”
Hu Jie pointed out that, as a result of the change in exchange rate conversion ratios, it cannot be said that the German economy has outpaced the Japanese economy and that, in the final analysis, it is important to compare the products actually consumed and the services actually enjoyed. “There is no perfect formula for horizontal comparisons of output across the world.”
According to Hu Jian, real GDP growth rates are a vertical comparison of GDP output, measured in the same currency within a country, and the inflationary factor is deducted. As a result, the IMF projected Japan ' s real GDP growth rate of 2.0 per cent per annum in 2023, reflecting relatively real growth in Japan ' s economy.
The Director of the Financial Risks and Financial Supervision Unit of the Institute of Finance of the Chinese Academy of Social Sciences, Zheng Zheng Zheng Zheng Zheng Zheng Zheng Zheng Zheng Zheng Zheng Zheng Zheng Zheng Zheng Zheng Zheng stated to the press that the IMF statistics are the standard for comparing countries’ GDP, and it is a fact that under this standard (in dollar terms, nominal GDP) Germany’s economic output exceeds that of Japan. Of course, the relative changes in economic output between the two countries have multiple factors. The “controversial” between nominal GDP in dollar terms and the two sets of annual real GDP growth rates is mainly due to the impact of exchange rate changes on both countries’ GDP growth rates, which reflect the volatility of international foreign exchange markets and the complexity of exchange rate decisions. Depending on the characteristics of the two economies, it may also be necessary to analyse the total and the structure of their respective growth, with German growth weaker than Japan in 2023. Of course, it also reflects the importance of currency stability.
The yen is devalued or has reached its bottom
“I think the Japanese yen has fallen to its bottom,” Hutt says that the Central Bank of Japan has adopted a policy of negative interest rates, and has kept interest rates at very low levels as it stands, and that for more than a year, inflation in the Japanese economy has gone up, and the extremely low interest rate environment is actually under great pressure, with the possibility of some gradual easing. At the same time, the interest rate hike between the Fed and the European Central Bank is nearing its end, so that the pressure on the yen to depreciate against the United States dollar and even against the euro will disappear.
Wang Jinbin believes that, in the medium to long term, Japan will appreciate the yen and narrow the current devaluation, as long as it can keep the economic growth rate at a relatively good level, and that, in this sense, Japan’s nominal GDP will again outpace Germany in the future.