IMF projects Japan’s GDP to fall to world’s 4th in 2023 after Germany

Japan’s nominal gross domestic product in 2023 is expected to slip from third to fourth in the world on a U.S. dollar basis, to be overtaken by Germany, on the back of the yen’s depreciation, recent International Monetary Fund projections showed.

As the nominal GDP figure is impacted by inflation, Japan’s expected fall from the No. 3 spot, which it has held for more than a decade, is also believed to reflect higher price increases in Germany than in Japan.

The IMF’s projections for the period through 2028 say that India, which has surpassed China to become the world’s most populous nation with more than 1.4 billion people, is likely to have a larger GDP than Japan in 2026.

While Japan is expected to be the world’s fifth-largest economy between 2026 and 2028, India’s GDP is projected to rank fourth in 2026 and third in 2027.

In 1968, Japan eclipsed West Germany in terms of gross national product, also known as GNP, which was the main indicator at the time, and became the world’s second-largest economy after the United States.

Japan held the position until it was overtaken by China in 2010, falling to third place.

Regardless of foreign exchange rates, which have a significant influence on GDP, Japan has seen a long period of low growth. Germany’s population is about two-thirds of Japan’s, but the growth gap between the two countries has been narrowing in recent years.

According to the IMF estimates, Japan’s nominal GDP is set to be around $4.23 trillion in 2023, down 0.2 percent from the previous year, compared with Germany’s $4.43 trillion, up 8.4 percent.

The dollar has recently traded at around 150 yen, compared with an average in the mid-131 yen range as traded during Tokyo market hours in 2022, according to Bank of Japan data. The yen’s sharp fall has been driven by the prospect of a further widening in the interest rate difference between Japan and the United States.

Meanwhile, the exchange rate of the euro against the dollar has not changed as much as the yen.

Also looking at monthly inflation rates, Japan’s consumer price index has generally been up by around 3 percent year-on-year. But the inflation rate in Germany was about 9 percent at the beginning of this year, before gradually slowing down and declining to the 4 percent range in September.

By Muhammad Umari