Japanese overtaken by China in global economy

Japan has lost its place as the world's second biggest economy to China after posting dismal growth figures which have added to evidence of a stunted global recovery.

The Japanese government revealed the country's GDP grew at an annualised rate of just 0.4 per cent in the second quarter, far below the 4.4 per cent growth seen in the first quarter, and the 2.3 per cent expected by economists.

The figures saw Japan's economy slip to third place behind China – its economic output in the second quarter was $1.29 trillion, compared with Chinese economic output of $1.34 trillion in the same quarter.

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The figures underscore China's emergence as a major economic power – it is already the biggest exporter, car buyer and steel producer in the world.

China has been a major force behind the world's emergence from deep recession, feeding growing consumer and industrial demand with exports from the US, Japan and Europe.

But economists warned the latest figures from Tokyo showed Chinese demand alone may not be enough for major economies, including the UK, to rely on.

Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo, said: "Japan is the canary in the goldmine because it depends very much on demand in Asia and China, and this demand is cooling quite a bit. This is a warning sign for all major economies that just focusing on overseas demand won't be sufficient."

China's economy will almost certainly be bigger than Japan's at the end of 2010 because of the huge difference in each country's growth rates – China is growing at about 10 per cent a year, while Japan's growth is between two and three per cent this year.

Since the early 90s, Japan has seen stagnant growth while China has grown spectacularly.

Japan's population is still among the world's richest, with a per capita income of $37,800 (24,233) last year, compared with China's $3,600 (2,307).

Economists said Japan's outlook for the third-quarter is uncertain, with the slowing global economy weakening exports and production.

Germany and the US recently reported far superior GDP figures for the same period.

Germany registered a 2.2 per cent rise, while the US economy grew at an annualised rate of 2.4 per cent.

The UK posted a 1.1 per cent rise for the same period.

Japan had benefited from blistering growth in Asia which stimulated exports. But consumer spending, which accounts for about 60 per cent of GDP, remained flat.

China's economy has grown until it is now 90 times bigger that when it first ditched communism in 1978. However, China is still classed as a developing country because of the very low income of individual Chinese, below Angola, giving it a gross national income ranked only 127th in the world.