The UK is not the only country to have recently fallen into a technical recession, with Japan also seeing an unexpected GDP dip for a second consecutive quarter.
The IOE&IT Daily Update here looks at GDP figures for major economies around the world for the period from October to December 2023.
Falling behind
Figures released today (15 February) show that Japan’s 2023 Q4 GDP dropped by 0.4% year-on-year.
A 3.3% drop in the quarter before means the country has entered a recession, after analysts had predicted a 1.4% increase.
Shifting world order
The unexpected slump means that Japan has fallen behind Germany in GDP ranking, with the latter becoming the world’s third-largest economy, as reported by Reuters.
Some economists have suggested that weak demand for Japanese imports from China bears part of the responsibility, while a low level of domestic demand also appears to have contributed.
Senior executive economist at the Dai-ichi Life Research Institute, Yoshiki Shinke, told Reuters:
“What's particularly striking is the sluggishness in consumption and capital expenditure that are key pillars of domestic demand.
“The economy will continue to lack momentum for the time being with no key drivers of growth.”
Domestic consumption is struggling on the back of low wage growth. Economy minister, Yoshitaka Shindo, said pay was “lacking momentum”, failing to keep pace with rising prices.
The Bank of Japan’s long-standing negative interest rate policy, which has been in place since February 2016, was predicted by some analysts to come to an end this year. But, says Naomi Muguruma of Mitsubishi UFJ Morgan Stanley Securities, “the hurdle for ending negative rates” has now “risen”.
‘Dramatically bad’
Though it may have leapfrogged Japan, Germany’s economy is facing its own woes, if economy minister Robert Habeck is to be believed.
The German government is reported by Euractiv to be cutting its growth forecast for 2024 to 0.2%, which Habeck described as “dramatically bad” in a recent appearance in Leipzig. He also spoke at the World Economic Forum in Davos last month to suggest that the rising trade barriers caused by geopolitical tensions have hit Germany harder than other nations, as it “especially relies on open markets”.
Higher energy prices in particular are hitting the German economy and a 0.2% growth rate would not return it to where it stood before 2023, a year in which its economy contracted by 0.3%.
The European Commission (EC) said last month that energy prices would remain higher than before the pandemic for the foreseeable future and that this has “widened the relative disadvantage of European producers with respect to the US”, where energy remains cheaper.
Europe forecast
The EC has also published its forecasts for EU growth in 2024, downgrading its autumn forecast.
It now predicts a 0.9% growth rate in the EU, a drop from its previous forecast of 1.3%, as well as a 0.8% growth in the eurozone this year, down from 1.2%.
These figures do come with a lower predicted rate of inflation, however, with eurozone inflation expected to drop to 2.7% this year, down from 5.4% in 2023. The commission’s previous prediction was a 3.2% inflation rate.
The ongoing crisis in the Red Sea is expected to “exert some upward price pressures”, the Commission noted, though “without derailing the process of declining inflation”.
But it does warn that further disruption in the Middle East could result in “renewed supply bottlenecks that could choke production and push up prices”.