Japanese angst as India set to overtake as 4th largest economy

India Set to Overtake Japan in GDP Ranking by 2025

The announcement that in 2025 India will overtake Japan in nominal gross domestic product in dollar terms has shocked Tokyo, which had until 2010 been the undisputed second-largest economy in the world but is now on the brink of slipping to fifth place.

In estimates released in late April, the International Monetary Fund (IMF) indicated that India’s nominal GDP will reach $4.34 trillion (€4.03 trillion) in 2025, surpassing Japan’s $4.31 trillion. The timing of India’s surge into fourth place in the world comes one year earlier than the IMF’s last estimate, due in large part to the weakness of the Japanese yen.

Japan’s Decline and Concerns

Japan’s decline in the global economic standings follows the government’s confirmation that the nation slipped behind Germany in 2023. The shock at India likely surpassing Japan next year is comparable to 2010, when a buoyant China replaced Japan as the world’s second-largest 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.

Implementing ‘Abenomics’

The problems the nation faced were recognized by Shinzo Abe when he became prime minister in 2012 and announced sweeping plans dubbed “Abenomics” to lift Japanese growth, Schulz said.

Challenges and Structural Reforms

And while two of the “three arrows” of the policy — monetary easing by the Bank of Japan and fiscal stimulus through government spending — enjoyed a good degree of success, the third arrow, of structural reforms, fell short.

“The whole idea of Abenomics was to drive growth at businesses, but structural reforms were also needed to push productivity, but that is very hard to do in a country that is aging and where there is resistance to change, to digitalization and people who have been in positions for a long time simply prefer the old ways.”

Economic Impact of COVID-19 and Russia’s War in Ukraine

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%.

Developed Nations vs Emerging Markets

Some of Japan’s economic malaise can be linked to the three “lost decades” of stagnant economic growth, said Naomi Fink, global strategist and managing director of Nikko Asset Management in Tokyo.

“Both the US and Japan are developed markets and cannot be expected to grow as quickly as emerging markets, such as China and India, where the middle class is occupying an increasing share of GDP, infrastructure remains to be built, and in sum, a whole lot of capital has yet to be mobilized,” she told DW.

The key for future growth in Japan, she said, would be investing in productivity growth — technology, human capital, improvements in business processes — as population growth would not remain the primary driver of economic expansion.

Japan could not match India’s investment in infrastructure and a rapidly growing middle class, Fink added, while Germany had surpassed Japan primarily on the precipitous drop of the yen against the euro over the last 12 years — a decline of 40% that put the real exchange rate effectively at a 50-year low.

Challenges with the Yen

The feeble yen is arguably the Japanese government’s greatest challenge at the moment, said Schulz, as indicated by two apparent market interventions in April that were an attempt to bolster the currency.

“The yen is becoming a major problem and while in the past if governments did nothing it would bounce back, that is not happening this time,” he said. Market intervention has been “futile,” he underlined, and will remain that way for as long as interest rates remain static.

The solution, the expert pointed out, is for the Bank of Japan to adopt a tighter monetary policy and for the nation to focus on improving productivity.

Cautious Optimism for Japan’s Future

Fink is also cautiously optimistic that improvements might be on the horizon. “I expect Japan to clear its low bar of potential growth, but we cannot expect developed economies to grow as rapidly as developing economies,” she said. “I think the main goal for Japan is not to achieve nominal growth at all costs but to conquer deflation for good and increase its currently low potential growth.”

A number of initiatives that have already been implemented — altering corporate governance practices, encouraging greater labour participation to reduce the pressures of shortages of skilled labour and “fashioning policies to help burnish human capital” — will pay off, she said.

“There are already some good signs that this is happening,” she added, pointing to companies’ investment behaviour in response to labour shortfalls, particularly in the form of wage increases this spring, “which may show some positive spillover into the rest of the economy.”

SDGs, Targets, and Indicators

1. SDG 8: Decent Work and Economic Growth

   • Target 8.1: Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7 percent gross domestic product growth per annum in the least developed countries
   • Target 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading, and innovation, including through a focus on high-value added and labor-intensive sectors
   • Target 8.3: Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity, and innovation, and encourage the formalization and growth of micro-, small-, and medium-sized enterprises, including through access to financial services
   • Target 8.4: Improve progressively, through 2030, global resource efficiency in consumption and production and endeavor to decouple economic growth from environmental degradation, in accordance with the 10-year framework of programs on sustainable consumption and production, with developed countries taking the lead
   • Target 8.5: By 2030, achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities, and equal pay for work of equal value
   • Target 8.6: By 2020, substantially reduce the proportion of youth not in employment, education, or training
   • Target 8.7: Take immediate and effective measures to eradicate forced labor, end modern slavery and human trafficking, and secure the prohibition and elimination of the worst forms of child labor, including recruitment and use of child soldiers, and by 2025 end child labor in all its forms
   • Target 8.8: Protect labor rights and promote safe and secure working environments for all workers, including migrant workers, in particular women migrants, and those in precarious employment
   • Target 8.9: By 2030, devise and implement policies to promote sustainable tourism that creates jobs and promotes local culture and products
   • Target 8.10: Strengthen the capacity of domestic financial institutions to encourage and expand access to banking, insurance, and financial services for all
   • Target 8.a: Increase Aid for Trade support for developing countries, particularly least developed countries, including through the Enhanced Integrated Framework for Trade-Related Technical Assistance to Least Developed Countries
   • Target 8.b: By 2020, develop and operationalize a global strategy for youth employment and implement the Global Jobs Pact of the International Labor Organization
   • Target 8.c: By 2020, substantially reduce the proportion of youth not in employment, education, or training

2. SDG 9: Industry, Innovation, and Infrastructure

   • Target 9.1: Develop quality, reliable, sustainable, and resilient infrastructure, including regional and transborder infrastructure, to support economic development and human well-being, with a focus on affordable and equitable access for all
   • Target 9.2: Promote inclusive and sustainable industrialization and, by 2030, significantly raise industry’s share of employment and gross domestic product, in line with national circumstances, and double its share in least developed countries
   • Target 9.3: Increase the access of small-scale industrial and other enterprises, in particular in developing countries, to financial services, including affordable credit, and their integration into value chains and markets
   • Target 9.4: By 2030, upgrade infrastructure and retrofit industries to make them sustainable, with increased resource-use efficiency and greater adoption of clean and environmentally sound technologies and industrial processes, with all countries taking action in accordance with their respective capabilities
   • Target 9.5: Enhance scientific research, upgrade the technological capabilities of industrial sectors in all countries, in particular developing countries, including, by 2030, encouraging innovation and substantially increasing the number of research and development workers per 1 million people and public and private research and development spending
   • Target 9.a: Facilitate sustainable and resilient infrastructure development in developing countries through enhanced financial, technological, and technical support to African countries, least developed countries, landlocked developing countries, and small island developing States
   • Target 9.b: Support domestic technology development, research, and innovation in developing countries, including by ensuring a conducive policy environment for, inter alia, industrial diversification and value addition to commodities
   • Target 9.c: Significantly increase access to information and communications technology and strive to provide universal and affordable access to the Internet in least developed countries by 2020

3. SDG 10: Reduced Inequalities

   • Target 10.1: By 2030, progressively achieve and sustain income growth of the bottom 40 percent of the population at a rate higher than the national average
   • Target 10.2: By 2030, empower and promote the social, economic, and political inclusion of all, irrespective of age, sex, disability, race, ethnicity, origin, religion, or economic or other status
   • Target 10.3: Ensure equal opportunity and reduce inequalities of outcome, including by eliminating discriminatory laws, policies, and practices and promoting appropriate legislation, policies, and action in this regard
   • Target 10.4: Adopt policies, especially fiscal, wage, and social protection policies, and progressively achieve greater equality
   • Target 10.5: Improve the regulation and monitoring of global financial markets and institutions and strengthen the implementation of such regulations
   • Target 10.6: Ensure enhanced representation and voice for developing countries in decision-making in global international economic and financial institutions in order to deliver more effective, credible, accountable, and legitimate institutions
   • Target 10.7: Facilitate orderly, safe, regular, and responsible migration and mobility of people, including through the implementation of planned and well-managed migration policies
   • Target 10.a: Implement the principle of special and differential treatment for developing countries, in particular least developed countries, in accordance with World Trade Organization agreements
   • Target 10.b: Encourage official development assistance and financial flows, including foreign direct investment, to States where the need is greatest, in particular least developed countries, African countries, small island developing States, and landlocked developing countries, in accordance with their national plans and programs
   • Target 10.c: By 2030, reduce to less

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     Fuente: indianexpress.com

      

     

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