According to the latest projections by the International Monetary Fund (IMF), Germany’s nominal gross domestic product (GDP) is estimated to reach $4.4 trillion in 2023, surpassing Japan’s $4.2 trillion. This makes Germany the world’s third-largest economy, behind only the United States and China. The IMF’s projections are based on the exchange rates and inflation rates of different countries.
Germany’s economic performance has been boosted by its strong export sector, which has benefited from the recovery of global demand after the pandemic. Germany is also a leader in innovation and technology, especially in the fields of renewable energy, automotive, and engineering. Germany has also managed to contain the spread of Covid-19 and vaccinate most of its population, which has helped to maintain consumer confidence and spending.
Japan faces economic challenges amid currency depreciation
Japan, on the other hand, has faced several economic challenges in recent years, such as an aging population, low productivity growth, and deflationary pressures. Japan’s economy has also been hit hard by the pandemic, which has disrupted its supply chains and tourism industry. Japan’s government has implemented several stimulus packages to support the economy, but they have also increased its public debt to over 250% of GDP.
One of the main factors that contributed to Japan’s fall behind Germany is the depreciation of the yen against the dollar and the euro. The yen has weakened by about 10% against the dollar and 15% against the euro since the beginning of 2023. The yen’s weakness is largely due to the divergence in monetary policies between Japan and other major economies. While the Federal Reserve and the European Central Bank have raised interest rates from pandemic lows to tackle inflation, the Bank of Japan has kept its policy rate at -0.1% and continued its massive asset purchases to stimulate price growth.
Implications for global economic order and relations
The shift in the ranking of the world’s largest economies has implications for the global economic order and relations. Germany’s rise reflects its economic resilience and influence in Europe and beyond. Germany is a key member of the European Union and a major trading partner for many countries. Germany is also a leader in addressing global issues such as climate change, human rights, and multilateralism.
Japan’s decline, however, does not mean that it is losing its relevance or competitiveness in the world. Japan remains a major economic power with a high standard of living and a strong technological base. Japan is also an important ally for the United States and a strategic partner for many countries in Asia and elsewhere. Japan is also actively involved in regional and global initiatives such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Quad.
