UK, Japan fell into recession : India’s economy a bright spot as Japan and UK enter tech recession, What does this mean for global markets?

UK and Japan fell into recession
UK and Japan fell into recession

UK and Japan fell into recession

After economic growth in the second quarter due to weaker domestic demand, Japan unexpectedly slipped into recession and lost its position as the world’s largest economy to Germany. This comes after Britain also slipped into recession late last year, undermining Chancellor Rishi Sunak’s claims of economic growth ahead of a general election.

On the other hand, despite geopolitical contradictions and economic obstacles, the world’s largest democracy continues to shine as a bright spot on the world map. India has retained its position as the fastest growing country in the world. In its latest World Economic Outlook, the International Monetary Fund (IMF) projects India’s economic growth at a solid 6.5 percent in 2024 and 2025.

UK, Japan fell into recession

But what happened in Japan and Britain, both long-time leaders of the global economy, and how might this affect global markets in the near term? Let’s take a closer look:

What is recession?

But what has happened in Japan and Britain — both countries long on the front lines of recession — is usually defined by two consecutive quarters of decline. A recession lasts for several months, but the economy may not return to its former peak for many years. Real gross domestic product (GDP) is a measure of the value of a country’s products and services. The annual interest rate measures what would have happened if the quarterly interest rate had remained for one year.

UK, Japan fell into recession

Unemployment rates tend to remain relatively high even after an economic recovery, so the early stages of an economic recovery can feel like a prolonged recession for many people. The economy falls into recession due to a decline in domestic demand, a rise in inflation, a decline in industrial production, and a rise in oil prices.

What happened in UK?

Britain’s gross domestic product fell by 0.3 percent in the fourth quarter, more than the 0.1 percent decline economists had predicted, the Office for National Statistics said. This followed a flat 0.1 percent decline in the previous three months.

ONS director of economics and statistics Liz McConnell said output across all key economic sectors would fall in the final quarter of 2023, with “manufacturing, construction and wholesale trade representing the biggest challenge to growth, but “this will be partly driven by the Growth in balanced.” the economy. . Hotel and hotel rental.” Vehicles and machinery.”

Last year, Mr Sonak made economic growth one of his top five promises. But figures from the ONS show Britain has stagnated in the prime minister’s first year. Gross domestic product fell by 0.2 percent in the fourth quarter compared to the previous year, and the overall growth rate for 2023 was only 0.1 percent.

The figures mean the cost of borrowing and mortgages will remain high due to the Bank of England’s (BoE) decision to keep interest rates at a 14-year high, putting pressure on household budgets. The decline in British economic output in the last quarter of 2023 was also the sharpest decline since the beginning of 2021, the peak of the pandemic.

State of Japan’s economy

Japan’s GDP shrank 0.4 percent year-on-year in the last three months of last year, the cabinet said Thursday, after a 3.3 percent contraction in the previous quarter.

UK, Japan fell into recession

Households and businesses cut spending in the third quarter as Japan’s economy fell to the world’s fourth largest in dollar terms last year, the report said. The Bank of Japan’s (BoJ) Policy Council recently ramped up talk of an exit from negative interest rates to reassure markets that the rate hikes do not represent a radical policy shift.

Japanese Finance Minister Shunichi Suzuki said on Friday that the Bank of Japan must make a decision on monetary policy, including when the central bank may end its negative interest rate policy.

“I know there are different opinions in the market,” Suzuki told reporters when asked if the weak GDP data could affect the timing of the end of negative interest rates, which many investors expect in March or April.

For the full year, Japan’s nominal GDP was about $4.19 trillion, based on the year-end dollar-yen exchange rate. Germany’s GDP in 2023 was approximately $4.55 trillion, based on the year-end euro-dollar exchange rate. According to IMF estimates, India’s economy will overtake Japan and Germany in the coming years.

Impact on global markets

Foreign investors increased their buying of Japanese stocks last week as easing concerns over a possible Bank of Japan policy change boosted market sentiment. Foreigners amassed 817.43 billion yen ($5.44 billion) worth of local stocks in the week ended Feb. 9, their biggest net purchase since Jan. 12 for the week, according to Japanese stock exchanges.

They bought 451.06 billion yen worth of derivatives after two consecutive weeks of net selling, providing an additional 366.37 billion yen in cash reserves. The Nikkei gained 2.05 percent last week, its biggest gain since January 12.

The stock closed at 38,487.24 on Friday, positioning itself as a test of the all-time high of 38,957.44 reached in December 1989. Japanese stocks are supported by a weaker yen, hampered by the Bank of Japan’s reluctance to raise interest rates. It is trying to get out of decades of deflation.

In contrast, the UK is suffering from inflation more than double the Bank’s target despite the economic downturn. Over the long term, British and Japanese stocks are very different. The FTSE 100 has fallen 5.5 percent over the past 12 months, while the Nikkei is up 38 percent. By comparison, the price of the SandP 500 rose 21 percent last year.

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