April 25, 2024
World Economy

The Biggest Economies Over Time [Infographic]

Japan posted quite disappointing GDP figures for 2023 today, causing it not only to slip into recession but to slip down one rank among the world’s biggest economies. Once considered an absolute economic powerhouse, Japan is now the world’s fourth-largest economy after the United States, China and Germany. The country’s economy has in recent years struggled between low wage growth and low domestic demand as well as low capital expenditure and investment. The weakness of the Yen against the U.S. dollar did the rest to push the nation out of the world economy’s biggest three.

On Thursday, a government release putting Japan’s 2023 GDP at a converted $4.2 trillion (opposite Germany’s $4.5 trillion) sealed the deal. Despite Japan’s poor performance, the raking of the largest economies over time shows a bigger Asian presence towards the top due to the growth of China and India.

As seen in International Monetary Fund data, Japan was the world’s second-largest economy behind the United States all through the 1980s, 1990s and into the 2000s. By 2008, China had definitively caught up to rank 3 and overtook Japan shortly after—in 2010—as part of its seemingly unstoppable ascent. Now, 13 years later, it is down another spot for Japan which is struggling to hold on to its economic legacy that was built, similar to that of Germany, in the post-World War II boom period.

The IMF had already predicted Japan slipping behind Germany in the ranking as of October. Additionally, it predicts that by 2028, Japan will only occupy rank 5 among global economies. By that time, India is expected to have mimicked China’s meteoric economic rise, leaping to rank 3.

Japan has been suffering from a severe case of economic stagnation since the 1990s that has been dubbed the Lost Decades by observers. After a stock market crash and economic crisis brought about by an asset bubble in the late 1980s, debt, unprofitability and survival on bailouts defined Japanese banks and enterprises while consolidation was delayed. Despite monetary policy that was meant to stimulate the economy, Japan never really recovered, averaging just 1.2% in annual average real GDP growth between 1995 and 2002. It was only in mid-2023 that the Japanese stock market hit pre-crisis levels again.

Legacy economic problems?

While Germany has now overtaken Japan due to slightly higher GDP figures, both countries are actually struggling with similar economic problems fueled by an aging society, a lag of digital innovation and a heavy dependence on exports which initially shaped their success stories. In the case of Japan, trade with China has been a particular issue as the country’s account balance with its neighbor to the West has shown a deficit since early 2022. Nikkei Asia points out the influence of the decrease in Japanese semiconductor exports to China on this. The country has been making technological advancements in the sector fast, again highlighting the question which roles old and new economic powers will play on the future world stage.

The ranking placing Japan fourth is based on nominal figures, meaning that GDP is not adjusted for purchasing power parity, which is sometimes done to make economic data more comparable between countries with lower and higher price levels. Applying this metric instead, Japan has been the world fourth-largest economy since 2009 behind China, the United States and India, but still ahead of Germany.

Charted by Statista

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