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Japan’s Economy Contracts, Loses Its Place to Germany

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Japan’s Economy Contracts, Loses Its Place to Germany

Japan’s economy unexpectedly contracted due to weak domestic consumption, pushing the country into recession and causing it to lose its position as the world‘s third-largest economy to Germany. For its part, the United Kingdom entered a recession just a few months before the general election, according to official data published this Thursday, derailing Prime Minister Rishi Sunak’s promise to generate economic growth.

Recession in Japan

The Gross Domestic Product (GDP) contracted at an annualized rate of 0.4% in the last three months of 2023, after an annualized 3.3% contraction in the previous quarter. This is leading to concerns of a recession as it is usually defined as two consecutive quarters of economic contraction. Domestic demand was especially weak in all major categories, leading to a negative impact on consumer spending. Only external demand had a positive balance, including tourist spending, which increased sharply.

The decline was well below market forecasts, with private consumption falling and capital expenditures also decreasing. Despite the recession, Japanese markets have remained bullish, with the Nikkei 225 index advancing 1.2% and closing above the 38,000 level for the first time since 1990. A recovery is expected in the coming months, with private consumption improvement in the current quarter and increased investment in facilities.

Recession in the United Kingdom

The United Kingdom’s Office for National Statistics (ONS) reported that GDP fell 0.3% in the last three months of 2023, leading to a mild recession as it is defined as two consecutive quarters of contraction. Low growth is attributed to high interest rates, but there are signs that the UK economy is turning a corner. Despite the mild recession, the United Kingdom’s economy has fared considerably better than expected, with employment continuing to increase and real wages rebounding.

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The data provides an inauspicious backdrop for the government’s annual budget announcement next month and could affect the upcoming general election. Despite the mild recession, the British economy is expected to teeter towards positive territory slowly, with food inflation falling and salaries growing more than prices for seven consecutive months. The recovery is expected to be bleak, with productivity growth stagnating last year, suggesting a slow growth.

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