The Japanese daily newspaper “Nihon Keiza Shimbun” (“Nikkei”) reports that new data from the International Monetary Fund (IMF) shows that Germany’s economy has surpassed Japan’s this year. In the year 2000, Japan was the world’s second-largest economy, but since 2010, it has been the third largest behind the US and China.
However, this change is likely to be a cause for concern rather than pride for Germany, as reported by “Handelsblatt”. Germany’s Gross Domestic Product (GDP) is expected to decrease by 0.5 percent this year, while Japan’s is projected to increase by two percent. Germany is experiencing a decline in consumption and its vital exports are faltering.
What’s even worse: Since the end of the Second World War, Japan and Germany have, in many ways, faced almost the same fate. Therefore, Japan’s new weakness could easily be considered a dire message for the Federal Republic.
Japan Ages, Germany Follows Suit
An important reason for Japan’s economic woes is the increasing aging of its society, as reported by “Business Insider”. Since 1995, the number of working-age people in Japan has been steadily decreasing due to a combination of improved living conditions, increasing life expectancy, and declining birth rates.
A similar effect is expected in Germany once the majority of the baby boomers retire. By 2030, it’s projected that five million more Germans will retire than there will be people entering the workforce.
According to calculations by Harvard economists Rainer Kotschy and David E. Bloom, this demographic shift is expected to reduce German economic growth by approximately 0.9 percent annually.
Given that Germany has experienced three years of recession and three years of growth below 0.9 percent in the past two decades, it is likely that there could be about six recession years in the same period in the future. In this case, approximately one-third of the years would be recession years, making growth almost unattainable.
India Set to Surpass Germany and Japan Soon
In addition to the demographic shift, Japan’s economic figures are also burdened by the weak exchange rate and significantly lower inflation compared to the rest of the world, as reported by “Handelsblatt”.
Over the past twelve months, the euro has strengthened by more than seven percent against the dollar, resulting in a nominal growth of more than seven percent in Germany. To make national GDPs comparable, the IMF converts all GDPs into dollars, thus taking this effect into account.
Additionally, the inflation rate, which is currently significantly higher in the EU zone than in Japan, contributes to making Japan’s nominal economic power appear lower than it actually is. Nominally, Japan’s GDP is expected to be around 4.23 trillion US dollars this year, while Germany’s is projected to be around 4.42 trillion US dollars.
However, Japan’s real economy is also stuck in a chronic crisis. Since 2000, it has only grown by about ten percent. In the same period, the German economy, propelled by globalization and cheap energy from Russia, has grown by around 90 percent.
The most likely scenario is that soon neither Japan nor Germany will hold the third place in the world economy list. Demographically young India already has an economic power of approximately 3.73 trillion US dollars today and is growing at a pace that Japan and Germany can only dream of.
