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Japan and UK in Technical Recession: Global Impacts with India’s Economic Resilience

UK's gross GDP fell by 0.3% in the fourth quarter of 2023 after contracting 0.1% in the third quarter of 2023.

After the economies released their third and fourth-quarter Gross Domestic Product (GDP) performance results, it was reported that a recession took place in the world’s largest economies.

The United Kingdom (UK) entered a recession in 2023, just ahead of its general election, according to the data provided by the Bank of England. In the meantime, Germany replaced Japan as the world’s third-largest economy. Japan slipped into a recession phase, as reported by the Bank of Japan.

On the other hand, India is currently reported to be the world’s fifth largest economy, according to the GDP data released by the Reserve Bank of India and the UK as the sixth largest economy as listed by the International Monetary Fund (IMF) for these economies in February 2024.

The Present Global GDP Financials – 

According to the International Monetary Fund (IMF), the GDP financials of the world economies are as follows –

Japan’s nominal GDP was about USD 4.19 trillion based on the year-end dollar-yen rate, while Germany’s 2023 GDP was approximately USD 4.55 trillion based on the year-end euro-dollar rate.

CountryNominal GDP (USD Trillion)

What do you mean by Recession? 

There is no official, globally recognised definition of a recession. In 1974, United States (US) economist Julius Shiskin described a recession as “two consecutive quarters of declining growth”, and many countries still adhere to that. Presently, growth is measured in terms of the value of the GDP of an economy. However, the US, which is currently the world’s largest economy, has since opted to use a more open definition. The National Bureau of Economic Research (NBER) looks at a variety of factors when deciding whether or not America is in Recession. The institution NBER defines the event as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators.

Digging into Japan’s Recession

A slowdown in spending by businesses, consumers crumbling with four-decade high inflation, weak yen and climbing food prices are the key reasons behind the Recession. A shrinking population is also a major factor resulting in the same. The financial performance of Japan’s economy, according to data as per CEIC, is as follows –

  • Japan’s 4Q23 GDP fell unexpectedly by 0.1%, while 3Q23 GDP was revised down to -0.8% (vs -0.7% previously). Domestic demand was particularly weak. Consequently, the contraction of the GDP for the last two quarters has led to a recession in Japan.
  • Private consumption declined by 0.2%, and service consumption fell by 0.6%. Durable goods consumption increased by 6.4%, but semi-durable fell by -1.7%, and non-durable goods consumption fell by -0.3%.
  • Net exports supported overall growth by adding 0.2 pp to the QoQ growth total. Exports grew 2.6%, with both goods (0.2%) and services (11.3%) up. The sudden jump in service exports is related to one-off hikes in royalty fees. Net exports contributed positively to overall growth.
  • On the investment front, business spending saw a decrease of 0.1% (as compared to the revised rate of -0.6% in 3Q23). Residential investment contracted further, by 1.0% (as compared to the previous rate of -0.6% in 3Q23). Non-residential investment, on the other hand, saw a relatively minor decrease of 0.1% when compared to previous quarters (-0.6% in 3Q23 and -1.4% in 2Q23).

The Bank of Japan (BoJ) must exercise caution when considering policy changes due to this kind of economic climate.

A Glimpse into the UK’s Recession

UK’s gross domestic product (GDP) fell by 0.3% in the fourth quarter of 2023 after contracting 0.1% in the third quarter of 2023. Consequently, the contraction of the GDP for the last two quarters has led to a recession in the UK. The decline in production, services, and construction output. Further, the falling volume of net trade, household spending and government expenditure also added to the situation. 

The figures reveal the financial strain on households, as the Bank of England has chosen to maintain the interest rates at a 14-year high, leading to high borrowing costs and mortgage rates. Additionally, Britain’s economic output declined significantly in the last quarter of 2023, resulting in the biggest drop since the beginning of 2021, when the pandemic was at its peak.

Pranesh Narayanan, a research fellow at the Institute for Public Policy Research, criticised the government for failing to grow the economy, particularly after looking up the data, which showed a mild technical recession in the UK. He blamed chronic underinvestment in hospitals, schools, and infrastructure, which has led to a crumbling public realm and a broken economy. Narayanan believes the figures should prompt the government to prioritise public investment over irresponsible tax cuts. 

India’s Current And Future Economic Situation

India remains a significant player on the global stage despite geopolitical and economic challenges, maintaining its status as the world’s fastest-growing major economy. The IMF projects a robust economic growth of 6.5% for India in both 2024 and 2025, positioning it to potentially surpass Germany and Japan in economic size. Currently the fifth largest economy, with a GDP of USD 4,112 billion in 2023-2024, India navigates tensions from a global recession affecting the largest world economies.

Trade relationships with the UK and Japan are pivotal, with notable imports and exports contributing to India’s economic dynamics. Despite a global economic downturn, India’s economy shows resilience, supported by increased government spending and timely investments fostering sectoral growth. Even with external pressures, including a global slowdown and regional crises, India’s exports have continued to grow, supported by a depreciating rupee and strong demand from key partners like the US. Challenges in core export sectors are acknowledged, but the finance ministry is optimistic, citing factors like easing inflation and a strong agricultural season to support future growth. The RBI has revised GDP growth projections for FY25 to 7%, reflecting confidence in India’s economic trajectory despite prevailing global headwinds.

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