The third chair changed hands, and the global economic power ushered in a big shuffle

According to the data released by the Japanese Cabinet Office recently, the preliminary statistics of Japan's GDP in 2023 is 591.482 trillion yen, about 4210.6 billion US dollars, lower than Germany's 4,456.1 billion US dollars. After more than 50 years, Japan's nominal GDP has once again been surpassed by Germany, falling from third to fourth in the world.

Many may wonder how Japan, whose stock market has hit a record high this year and whose economy emerged from a slump earlier this year, could suddenly be overtaken by Germany.

Both Japan and Germany are among the largest economies in the world, and their GDP (gross domestic product) rankings move frequently, reflecting relative changes in the economic strength of the two countries. Germany has again surpassed Japan and become the third largest economy in the world after the United States and China, mainly due to the following factors:

Differences in economic structure: The German economy relies on its strong manufacturing industry and exports, especially in high value-added areas such as machinery, automobiles, chemical products, and so on, which has a competitive advantage in the global market. In contrast, while Japan also has a strong manufacturing sector, it has faced a serious aging population and a saturated domestic market in recent years.

Demographic implications: Japan faces an even bigger ageing population problem than Germany. Japan's persistently low fertility rate, coupled with a high-life society, has led to a tight labor market and falling consumer demand, which poses a long-term challenge to economic growth. Although Germany also faces the problem of an aging population, it has eased the pressure on the labor market through a proactive immigration policy.

Economic policy and growth drivers: Germany plays a central role within the European Union, and its economic policies are often aimed at enhancing competitiveness and boosting exports, while Germany also benefits from the convenience of the EU single market. Despite Japan's efforts to boost growth through various economic stimulus measures, including the implementation of "Abenomics," these measures have had limited effect in promoting sustained growth.

Monetary policy and exchange rate changes: The Bank of Japan has long run an ultra-loose monetary policy, trying to stimulate economic growth and inflation through low interest rates and a massive asset purchase program. However, this has also resulted in a relatively weak yen, which has affected international comparisons of the Japanese economy. In contrast, monetary policy in the euro area, while also accommodative, has been more cautious in some respects, which has helped maintain the relative stability of the euro.

Global economic and trade environment: Changes in the global economic and trade environment also have an impact on the GDP ranking of the two countries. Germany, as an export-oriented economy, has been able to effectively take advantage of changes in the global trade environment, while Japan's exports have been affected by a variety of factors, including trade frictions.

Overall, Germany's overtaking of Japan as the world's third largest economy was determined by a number of complex factors. Faced with an increasingly serious aging population trend and a slowdown in industrial innovation, Japan's economy is also in a long-term weak state. However, the cold water to be poured on Japan may be more than this "basin", the International Monetary Fund (IMF) predicts that in 2026, Japan's GDP is likely to be surpassed by India, and further fall to the world's fifth. If so, Japan will be worse off. How can the economy be reversed?