Japan has been replaced by Germany, occupying the position of the world’s third largest economy after the nation’s domestic demand shrank for a second time before ultimately resulting in a recession.
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The cabinet office on Thursday said that the country’s GDP (Gross Domestic Product) reduced 3.3% in the previous months since it’s last shrinkage of 0.4% in the months of October to December, 2023. A country is typically considered to be in a recession when it’s GDP falls for two consecutive quarters indicating a decline in economic activity.
Reasons behind its economic slump
The reason behind its economic downturn is due to its ageing and shrinking population. Moreover, there’s been a fall of worth of Yen, the official currency of Japan against the US dollar over the past two years. Its currency witnessed a 7% fall last year. However, Japanese carmakers have highly gained from weaker yen as now their goods are sold at a low price in the international market. But, on the counterpart, the country faces a bigger and more serious problem that is the shortage of labour with a declining birth rate.
All attempts of the Government to boost birthrate among its citizens has gone futile. Furthermore, stagnation in consumption, production, expenditure is also contributing to the country’s ebbing economy. Households are battling hurdles like rising standard of living, fall in wages etc. According to the economists, the people are lagging in productivity and competitiveness. Japan’s bank(BOJ) has been maintaining negative interest rates. It has also been facing difficulties to keep up with growing global economies like China since 2010.
Statistics
Private consumption accounting for half of the country’s economy declined by 0.9% with augmenting prices of food, fuel and others. Capital expenditures decreasing by 0.3%. Private sector investment in housing experience a notable fall of 4%. Unemployment reached its lowest point in eleven months, dropping to 2.4%.
Solutions sought to combat this economic downfall
Immigration can be thought of as one of the paths to solve the state’s demographic issue. But it has been reluctant of accepting foreign people. Robotics is something that they have thought of, but this has its own consequences and also it won’t be able to make up for the lack of workers.
Yoshitaka Shindo, Japanese minister for internal affairs and communications said that they are trying their best to reamend policies that will encourage demand-driven growth. Structural reforms in public and private sectors are essential for reviving the state’s economy. Japanese manufacturing companies which are mostly, small and medium sized enterprises that make semiconductors, liquid crystals, precision machines are still globally demanded. Hence, there is a probability of growth and the Economic Strategy Council is taking that into account.
The Government is looking for facilities to increase female participation. It is not that there are no female workers but often women leave their jobs after getting married in order to take care of their children. Better childcare facilities will bring about a positive impact. BOJ needs to review its monetary policies in order to control inflation. Thus with all these efforts, Goldman Sachs projects that Japan’s economy would achieve 1% growth, in 2024.
UK joins Japan, ‘mild recession’ chances
Official reports based on data revealed that the Gross Domestic Product (GDP) of Britain has contracted by 0.3% during the last quarter of the year. The British Sterling saw a decline against both the US dollar as well as euro. There are speculations on the Bank of England cutting interest rates this year. Britain’s economy has been leading towards stagnation for two years, but the country’s Prime Minister, Rishi Sunak, promises to get the economy growing.
While both Japan and Germany have built their economies on small and medium sized enterprises, Germany has been able to manage itself against growing inflation in the whole of Europe. Germany dominates international markets by selling luxury cars and industrial machines which earns most of the country’s revenue.
However, amidst Europe’s sinking economy it is anticipated that India’s economy strengthened by an expanding youth population might overtake Japan in the upcoming years as per the International Monetary Fund.
