Japan's GDP to fall to world's 5th after India next year

Japan's nominal gross domestic product (GDP) will be overtaken by India's and slip from number 4 in the world to number 5 in 2025, according to projections by the International Monetary Fund (IMF).

The IMF's April report projected India's GDP will be $4.339 trillion next year, while Japan's GDP will stand at $4.310 trillion. The 2025 timing is a year earlier than previous projections, reflecting the yen's depreciation.

India, with more than 1.4 billion people, has the world's largest population and maintains high economic growth. According to the IMF, India's real GDP growth rate was 7.8% in 2023, while Japan's was 1.9%.

In addition to the country's strong domestic demand, the Indian government has encouraged foreign companies to bring their production to India. India's GDP is expected to surpass Germany's in 2027 and rise to third place.

Japan dropped to the world's fourth-largest economy after Germany in 2023.

In 1968, during a period of high economic growth, Japan overtook West Germany to become the world's second-largest economy. In 2010, however, China overtook Japan following a prolonged recession in Japan after the collapse of the bubble economy.

Nominal GDP is affected by international exchange rates and boosted by rising prices.

On April 29, the yen temporarily dropped to ¥160 against the dollar, its weakest level in about 34 years. The yen has weakened by as much as ¥20 against the dollar compared to earlier this year.

The decline of Japan's economy also reflects the country's prolonged stagnation.

Businesses have responded to protracted deflation by prioritizing cost cutting and failed to adequately invest earnings domestically.

"With the weak yen and the current recovery from deflationary trends, companies should increase domestic investment and build a structure of economic growth," said Keiji Kanda, senior economist at Daiwa Institute of Research.