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Recession Is Rearing its Head, But Not in the US

Japan and the UK both announced that their economies shrunk over the past 6 months, while US consumers have yet to stop spending.

Photo of U.S. flags hanging from New York Stock Exchange building
Photo by David Vives via Unsplash

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As the US financial class debates an economic “soft landing,” thunderous crashes can be heard in other parts of the world.

Japan and the UK — two of the top six economies in the world — both revealed on Thursday that they had retreated into “technical recessions”: two consecutive quarters of year-over-year GDP contraction. Meanwhile, developments in Asia show that governments there are loading up on fiscal stimulus to avoid the same plight.

Technical Foul

Japan, which unfortunately has a long history with this sort of thing, said that its Q4 GDP fell by 0.4% on an annualized basis after a 3.3% decline in last year’s Q3. While that’s technically an improvement, Reuters noted that many analysts fear the current quarter won’t be much better, given weak demand from key trading partner China, sluggish domestic consumption, and production halts at a Toyota division.

As if on cue, the UK government released a similar report on Thursday, revealing that the country’s Q4 GDP fell 1.4% for its second quarterly decline in a row, as consumer spending fell over the second half of 2023. Marcus Brookes, chief investment officer at UK-based Quilter investors, told CNBC that he expected the recession to be “potentially shallow and short-lived,” though it’s fair to wonder whether the average Briton would notice much difference if the UK economy grows by 0.7% in 2024, as predicted by the OECD.

Conversely, it’s probably of little comfort to citizens of China or South Korea that their slumping economies haven’t yet fallen into recession territory:

  • China, for example, saw its economy grow by a relatively enviable 5.2% in 2023, but that’s essentially a 50% drop from the high-flying double-digit growth of decades past. With the country’s stock market sitting at multiyear lows, the Chinese government has repeatedly stepped in with measures to boost its economy (recently lowering bank reserve requirements) and has taken a series of steps to curb short selling and buoy stocks.
  • In South Korea, the government just unveiled a $57 billion aid package with state and commercial banks to boost investment in high-tech industries and also ease high borrowing costs. The move comes amid news that South Korea’s full-year economic growth in 2023 trailed behind Japan’s for the first time in 25 years. One can imagine there’s one job for South Korea’s economic brain trust: Never, ever fall behind archrival Japan.

Ain’t That America: Here in the States, the economy just… keeps… going, which begs the question of what has made us so fortunate, considering that inflation and high interest rates have impacted economies around the globe. Unlike the US, much of Europe took an outsized hit from the war on Ukraine, specifically high energy prices that resonated throughout the continent because of its interconnected networks. In addition, the US consumer has continued to spend in the face of inflation, surprising many economists and suggesting that the pandemic strategy of floating loans to keep businesses alive and paying people to build up their savings wasn’t the worst idea in the world.