Two of the world’s largest economies, Japan and Britain, are currently experiencing a period of economic downturn. Yes, according to the figures from February 15, 2024, the GDP of both these countries has officially entered a recession after consecutive declines over the past two quarters.
But the question is, what has led these two major economies to this situation? In this article, we will delve into the reasons behind the economic downturn in these countries and also understand what exactly a recession is and meanwhile, analyse India’s situation amidst this.
What is Recession?
A recession is a period of two consecutive quarters of economic decline. Although it may last just a few months, the economy may take years to recover. Real Gross Domestic Product (GDP) measures a nation’s goods and services value. Unemployment often remains high during recovery, making it feel like a continued recession for many. Recessions can be triggered by factors like weak domestic demand, high inflation rates, decreased industrial output, and spikes in crude oil prices.
What’s Happening?
According to India Today, both Japan and Britain have witnessed a decline in their GDP in recent months, indicating an economic downturn. The UK saw a 3% decline in GDP in the quarter from October to December, while there was a 0.1% decline between July and September. Meanwhile, Japan’s GDP declined by 0.4% in the quarter from October to December and 0.9% between July and September, raising concerns about the stability of their national economies.
But why is the economy of Japan and Britain deteriorating? Let’s understand.
Causes of Downturn in Japan and Britain
According to Business Insider, there are several factors behind the economic downturn in both countries. Let’s understand them in depth:
Japan:
Weakening yen and declining population: The Japanese yen has been consistently weakening in recent years, affecting the country’s exports. Additionally, Japan has a very low birth rate, which could lead to a shortage of workers in the future.
Interest rate differentials: The Federal Reserve in the US is increasing interest rates, while the Bank of Japan is hesitant to do so. This is causing foreign investors to move away from Japan.
Britain:
Cost-of-living crisis: In Britain, inflation has increased significantly, reducing people’s purchasing power.
Reduced spending: Due to rising prices, people are spending less, which is slowing down the economy.
Impact of the European Union: Goldman Sachs analysts believe that Britain’s decision to leave the European Union is also harming its economy.
Could the Global Economy Fall into Recession?
According to India Today, while there is currently no fear of a global economic recession, the pace of the world economy could slow down in the coming times.
You might see in the graph that the pace of the global economy is slowing down, but there is currently no possibility of it slipping into a full-fledged recession.
India’s Situation Amidst Global Economic Downturns
According to NDTV, as Japan and Britain fall into recession, hopes are rising towards India as an attractive opportunity for investors. According to the International Monetary Fund’s estimates, India could become the world’s third-largest economy in terms of economic output by 2026, surpassing Japan, and by 2027, surpassing Germany.
Not only that, according to Mint, the latest report of the International Monetary Fund (IMF) states that India currently has the world’s fastest-growing major economy and its growth is estimated to be 6.5% in 2024 and 2025.
If we talk about the world’s largest economies, currently, India is the fifth-largest economy in the world, after the United States, China, Japan, and Germany.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*The article is for information purposes only. This is not an investment advice.
*Disclaimer: Teji Mandi Disclaimer
