Photo/Illutration The International Monetary Fund headquarters in Washington (Asahi Shimbun file photo)

WASHINGTON--The International Monetary Fund has forecast that Germany will overtake Japan this year as the world’s third-largest economy.

In its World Economic Outlook released this month, the IMF forecast that Japan’s nominal GDP will decrease 0.2 percent from the previous year to $4.23 trillion (630 trillion yen), while Germany’s will increase 8.4 percent to $4.43 trillion. 

That would push Japan to fourth place in the world.

The yen’s recent depreciation against the dollar and Germany’s higher inflation rate than Japan had an impact, but Japan’s fall is also a result of years of accumulated differences in real economic growth rates.

Nominal GDP is the total value added generated by each country, which represents the size of the country’s economy. It is affected by price fluctuations.

When compared in dollar terms, the United States ranks first in the world, followed by China.

Japan surpassed West Germany in 1968 to become the world’s second-largest economy. However, Japan was overtaken by China in 2010.

More than half a century since 1968, Japan is projected to be eclipsed by Germany.

The yen’s depreciation against the greenback has caused Japan’s nominal GDP to decline in dollar terms.

At the beginning of last year, the Japanese currency was in the 110-yen range against the dollar.

But it has remained at around 140-150 yen per dollar since June this year due to the widening interest rate gap between the United States and Japan resulting from differences in the two countries’ monetary policies.

On the other hand, the euro has not weakened against the dollar as much as the yen.

In addition, the year-on-year rate of increase in the consumer price index in Germany ranged between 6 and 9 percent from January to August.

This appears to have increased the country’s nominal GDP compared to Japan, where the rate of increase has recently been in the 3-percent range.

However, even when compared in terms of real GDP growth, which excludes the effect of prices, the simple average for the period between 2000 and 2022 was 1.2 percent for Germany and just 0.7 percent for Japan.

The switch in rankings indicates that Germany has continued to outpace Japan in economic strength, such as productivity growth and technological innovation, over the long term.

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