Feb. 15 (UPI) — Japan’s economy contracted for the second straight quarter in the October to December period, pushing it into a technical recession and ceding its spot as the world’s third-largest economy to Germany, GDP figures out Thursday show.
Japan’s fourth quarter GDP shrunk 0.4% on an annualized basis following a 3.3% fall in the July to September quarter, the Japanese government’s Cabinet Office said in a data release.
The economy had been expected to expand by 1.4%.
The October-December data are provisional and therefore subject to revision, but two consecutive quarterly falls in GDP is the most widely used definition of an economic recession.
Figures show that the size of Japan’s economy in 2023 was $4.2 trillion compared with Germany where GDP for the 12 months was $4.4 trillion, economist Neil Newman told the BBC.
However, Japan’s relegation to fourth place among economic superpowers behind Germany, China and the United States was not due to a booming German economy.
Its economy also underperformed in 2023, with the Federal Statistic Office blaming “rising interest rates and weaker domestic and foreign demand” for a 0.3% contraction in GDP over the year.
The reordering is, however, in line with an International Monetary Fund forecast in October that Germany was poised to leapfrog Japan into third place in dollar terms.
Expressing GDP in U.S. dollars is significant because the Japanese currency saw a significant decline in its value against the dollar during 2023, down by about 9%, although yen weakness actually helps stimulate the Japanese economy because it makes its goods cheaper in export markets.
In nominal GDP terms, the economy actually grew by 0.3% in the fourth quarter and 5.7% for the 2023 calendar year. The difference between nominal and real GDP is that the latter is inflation-adjusted.
The markets reacted positively to the news, with the Nikkei 225 Index jumping 461 points to a 5-year-high to end Thursday’s trading session at 38,187 after briefly breaching the 38,000 level on Tuesday for the first time in since the start of the country’s property crash in 1990.
Investors’ confidence could be informed by the weak economic data being seen as a strong signal that Japan’s central bank is not about to abandon its negative (-0.1%) interest rate policy any time soon.
Prior to the latest reshuffle, the last big shake-up in the economic world order was in 2010 when China usurped Japan’s position as the second-largest economy after taking the third spot from Germany in 2007.
