Japan's GDP unexpectedly declines, moves down from its third-largest economy

Unexpectedly, Japan's GDP shrank for a second consecutive quarter, indicating that the country's economy has now fallen behind Germany to the fourth largest economy in the world.

Japan, Asia's second-biggest economy, dropped an annualized 0.4% in the October to December quarter compared to the preceding quarter, following a revised 3.3% loss in the July to September period.

The Cabinet Office's preliminary numbers for the fourth quarter of 2023 were made public on Thursday. These numbers are in contrast to the median estimate of 1.1% yearly growth among economists QUICK surveyed.

Corporate investment fell by 0.3%, and private consumption fell by an annualized 0.9% during the fourth quarter. While imports increased by 7.0%, exports jumped by 11%.

Yoshiki Shinke of the Dai-ichi Life Research Institute said that the numbers are generally unexpectedly negative and that they reflect low capital investment and consumption.

Shinke anticipates further contraction in the quarters of January through March of this year due to declining exports, potentially marking the third consecutive quarter of decline.

Japan's economy is currently smaller than Germany's, despite growing by 1.9% in the calendar year 2023. According to a government official, Germany's economy was valued $4.4561 trillion, while Japan's nominal GDP for the year was $4.2106 trillion, based on average exchange rates.

Looking at long-term patterns in local currency terms, Japan's economic expansion is slower than that of Germany, indicating the low productivity of the Japanese economy. Labor market reforms implemented in Germany during the 2000s have increased company competitiveness and productivity. Another reason is the yen's sharp decline versus the dollar.