Economy Japan's angst as India will become 4th largest global economy

Deutsche Welle argues that after China (2010) and Germany (2023) surpassed Japan's economy, IMF estimates that India will overtake Japan in 2025, profoundly shocking the country.

The International Monetary Fund's recent projections, released in late April, suggest that by 2025, India's nominal GDP is expected to reach USD 4.34 trillion, overtaking Japan's projected GDP of USD 4.31 trillion. This advancement to the world's fourth-largest economy is anticipated to occur a year sooner than previously forecasted by the IMF, primarily attributed to the depreciation of the Japanese yen. Japan's economic ranking has been downward, as evidenced by its fall behind Germany in 2023. The prospect of India surpassing Japan shortly evokes memories of 2010 when China's robust economy overtook Japan's, becoming the second-largest global economy.

"For Japan, this is a very big concern — but few people are talking about it openly because it is embarrassing and very difficult to solve," said Martin Schulz, chief policy economist for Fujitsu's Global Market Intelligence Unit. [...] As elsewhere, the COVID-19 pandemic and Russia's war in Ukraine have had an impact on Japan's economy that is still being felt, but other indicators point to a more acute problem. The Organization for Economic Cooperation and Development (OECD) heaped new pressure on Tokyo with the May 2 release of its latest report on the outlook for global economic growth. While the OECD predicts growth of 3.1% for the world as a whole, up from 2.9% in its February report, and has forecast that both the US and China will outpace previous predictions, the Paris-based organization cut Japan's likely growth from the 1% it had projected three months earlier to just 0.5%.

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The yen's current weakness is a significant issue for the Japanese government, as highlighted by Schulz. Recent attempts to strengthen the currency through market interventions in April have proven ineffective. Schulz emphasized that without a change in interest rates, such efforts will likely continue being unsuccessful. He suggests that the Bank of Japan should implement a more stringent monetary policy and that Japan should concentrate on enhancing productivity as a resolution to this challenge.


Paywall alert:

It makes sense that the most populous country's economic output would be greater than anybody else's. If it's not it means the productivity is extremely low.

Why the angst? It's purely psychological. It's completely understandable that India, now the world's most populous country and with the population growing by 20 million people each year, should eventually overtake Japan, whose population is now declining by 1 million people per year. India is going to overtake Japan in total GDP earlier than expected but that's only because of the extremely low yen. What matters more is GDP per capita. I think it was more shocking for the Japanese to be overtaken by South Korea and Taiwan, their two former colonies, who copied the Japanese economic system (and incidentally also by European countries such as Spain, Slovenia and Cyprus).