Currencies

Japan and UK Economies Contract As US Booms


Smith Collection/Gado

  • Two of the world’s biggest economies are officially in recession, per new figures published Thursday.
  • Japan posted a surprise contraction in GDP, dragged down by its weak currency and aging population.
  • Meanwhile, UK growth shrank for the second straight quarter — just months ahead of a key election.

The US economy managed to shake off Wall Street’s gloomy forecasts and dodge a long-predicted slump last year — but the same can’t be said for two other members of the G7.

Japan and the UK are both officially in recession, according to figures published Thursday, after Gross Domestic Product (GDP) fell for two consecutive quarters to close out 2023.

Here’s why the world’s fourth and sixth-largest economies are struggling, even as the US goes from strength to strength.

Japan: Slumping yen, shrinking population

Japan officially lost its title as the world’s third-largest economy to Germany on Thursday, as Cabinet Office data showed that its economy shrank by 0.4% over the final three months of 2023.

The contraction, which followed a 3.3% third-quarter slump, defied forecasters’ prediction of a 1.4% jump.

The plunging Japanese yen is one issue that’s plagued Japan in recent years. 

The currency has tumbled 30% against the US dollar since the start of 2022, according to data from Dow Jones. It’s been dragged down by the Bank of Japan’s refusal to follow the Federal Reserve’s lead and raise interest rates, making it less attractive to foreign investors seeking juicier returns.

Japan’s economy has tended to rely on its exports of cars and other goods — and a weaker yen means that its companies bring in less money when they sell products abroad.

Like its neighbor China, Japan is also suffering due to an aging and shrinking population. A well-publicized fertility crisis means that Japanese women have just 1.3 children on average, well below the rate that demographers believe is needed to maintain a stable number of citizens. That could result in chronic labor shortages in the decades ahead.

UK: Cost-of-living crisis, weak spending

Britain also got some bad economic news Thursday, as official data showed its economy shrank by 0.3% between October and December — its second straight quarterly contraction.

That officially put the UK into recession. In 2023, it logged dismal growth of just 0.1%, for its worst 12-month performance since the year following the financial crisis in 2008.

Since the pandemic, the UK has been battling an even worse cost-of-living crisis than other developed countries. Inflation surged as high as 11% in October 2022 and is still running at 4%, double the Bank of England’s 2% target.

Soaring prices have eroded British consumers’ spending power — which has played a major role in keeping the US economy afloat. Meanwhile, Goldman Sachs analysts also warned this week that the UK is still suffering from the decision to leave the European Union back in 2016.

News of a recession comes at a particularly bad time for prime minister Rishi Sunak, who’s gearing up for a general election later this year and has tried to play up his economic credentials. His Conservatives are trailing the opposition Labour Party by 21 points in the polls, according to Politico data.



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