Japan is on track to lose its position as the world’s third-largest economy to Germany, but this may be due more to fluctuations in currency exchange rates than any inherent weaknesses in the Japanese economy. Despite a decline of 1.6% in industrial production levels in December compared to the previous month, reaching a level 10% below the pre-pandemic rate, Germany is managing to keep pace with deflation-struck Japan thanks in part to its younger population.
On the other hand, India’s population not only grew ahead of China’s last year but is also younger. This young workforce is what makes India well-positioned to surpass Germany’s economy by 2027 according to the International Monetary Fund. The Japanese and German economies are both grappling with aging and shrinking populations, which has put pressure on various industries.
Despite these challenges, policymakers in both Japan and Germany are optimistic about their respective economies’ future prospects. Talks of raising interest rates for the first time since 2007 have sparked hope that Japan may finally turn its decade-long deflation into healthier prices that support economic growth. In Germany, there are signs that inflation may be starting to stabilize, allowing shoppers to pay more for less without falling into deflation again.