Japan, once a thriving economic giant, is grappling with a significant setback as it slips into recession, relinquishing its position as the world’s third-largest economy and settling into the fourth spot behind Germany. Recent government reports reveal that Japan’s economy contracted in the last quarter of 2023, marking two consecutive quarters of decline and indicating a technical recession.
Cabinet Office data on real GDP released on Thursday disclosed a 0.4% annual contraction from October to December, despite a 1.9% growth for the entire year of 2023. The drop to fourth place, now behind Germany, is influenced by factors such as a weaker Japanese yen, population decline, and lagging productivity and competitiveness.
Japan, historically celebrated as an “economic miracle,” faced a significant shift since being overtaken by China in 2010. Despite keeping momentum through the 1970s and 1980s, the Japanese economy has struggled over the past three decades, especially after the collapse of its financial bubble in 1990.
Economists highlight a decline in population, stagnating wages, and businesses investing heavily in faster-growing economies overseas as contributors to Japan’s sluggish growth. The advent of electric vehicles has also challenged sectors like the powerful auto industry, impacting Japan’s historical advantages.
Germany, resembling Japan’s past economic dominance, also experienced a contraction in the last quarter of the year, reflecting global economic challenges. Meanwhile, Britain reported a technical recession in late 2023, emphasizing broader economic uncertainties.
The shrinking population and aging demographics pose significant challenges for Japan, making immigration a potential solution to its labor shortage. However, the country has been criticized for its relative reluctance towards foreign labor, raising concerns about diversity and discrimination.
In addition to immigration, robotics is gradually being deployed to address the labor shortage, although not to the extent that can fully compensate for the lack of workers.
As Japan faces a dim economic outlook for the next couple of decades, the gap between developed countries and emerging nations is narrowing, with India expected to overtake Japan in nominal GDP in the coming years. The U.S. remains the world’s largest economy, while China and India show impressive growth rates.
