South Korea's Economic Growth Rate Surpassed by Japan for the First Time in 25 Years

First Since 1998 Financial Crisis
Japanese Media Report "Korea Enters Low Growth Period"
Japan's Economic Status Declines... Korea Expected to Regain Lead

South Korea's economic growth rate last year fell below Japan's for the first time in 25 years since the Asian financial crisis. Reports in Japan highlighted that South Korea, like Japan, has entered a period of low growth. However, it is expected that South Korea will regain the lead this year. With prolonged low growth, Japan's economic size has slipped to 4th place in the world for the first time in 55 years, overtaken by Germany.

Japan's Cabinet Office announced on the 15th that Japan's real gross domestic product (GDP) growth rate for last year (preliminary figure) was 1.9%. Earlier, the Bank of Korea announced on the 25th of last month that South Korea's real GDP growth rate for last year was 1.4%, 0.5 percentage points lower than Japan's. This is the first time in 25 years since 1998, the second year of the Asian financial crisis when the government requested a bailout from the International Monetary Fund (IMF), that South Korea's economic growth rate has lagged behind Japan's.

Japanese foreign media focused on the fact that South Korea's growth rate fell behind Japan's, which has experienced a long-term recession for 30 years since the so-called 'bubble economy' collapse in 1990. They pointed out that South Korea is on a similar path to Japan due to the worsening speed of demographic changes caused by low birth rates and aging population. The Nihon Keizai Shimbun noted, "(Last year) structural problems related to (population) demographics, not one-off issues like the semiconductor downturn, began to emerge," adding, "There is a growing view that South Korea has also entered a period of low growth."

However, there is a possibility of reversal this year. In the global economic outlook, South Korea's real GDP growth rate for this year is projected at 2.3%, while Japan's is forecasted at 0.9%. Nevertheless, the implication is significant as South Korea could follow Japan's path. According to the IMF's '2023 Korea Article IV Consultation Report,' South Korea's real GDP growth rate is expected to continue low growth in the range of 2.1% to 2.3% until 2028.

Japan's standing on the international stage is steadily declining. Japan has fallen to 4th place in the world in nominal GDP, a measure of economic size, overtaken by Germany for the first time in 55 years. After losing the 2nd place to China in 2010, Japan's economic size ranking has dropped again after 13 years. At one time, during its high-growth period in 1968, Japan surpassed West Germany to become the world's 2nd largest economy after the United States.

According to Japan's Cabinet Office, Japan's nominal GDP last year increased by 5.7% year-on-year to 591.482 trillion yen (approximately 5200 trillion won). Converted to dollars, this amounts to 4.2106 trillion USD. Germany's nominal GDP last year was 4.1211 trillion euros (approximately 5900 trillion won), which converts to 4.5 trillion USD. Germany's nominal GDP is about 300 billion USD more than Japan's.

The fact that Japan has fallen behind Germany, where economic growth has also stalled, clearly shows the decline in Japan's economic power. Germany, known as the 'growth engine of Europe,' experienced a real GDP growth rate of -0.3% last year, marking a contraction for the first time in three years. Moreover, Japan's population is 51% larger than Germany's. The Asahi Shimbun reported, "The yen's weakness and Germany's inflation had a significant impact on Japan's GDP falling behind Germany last year, but in the long term, Germany's economic growth rate has outpaced Japan's," adding, "Based on IMF data, a simple estimate of real growth rates from 2000 to 2022 shows Germany at 1.2%, while Japan remained at 0.7%."

The IMF projects that Japan's economic size will be surpassed by India, the world's most populous country, around 2026. This is due to the unchanged economic structure where corporate productivity declines and wages do not rise.