US Economy Is Resilient (I)

choi

Joshua Kirby and Paul Hannon, Top Global Economies Fall Behind America; Uk and Japan echo weak conditions in much of continental Europe and China. Wall Street Journal, Feb 16, 2024, at page A 8.
https://www.wsj.com/economy/glob ... n-expected-30407624

Note:
(a) This article is free.
(b) Japan has depreciated yen, which contributes to its declining (nominal) GDP -- according to foreign exchange rate -- which in 4Q23 slipped behind that of Germany. Which means that the per capita (nominal) GDP of Japan is about a third less than that of Germany (population (2013 estimates):  Japan 125.4 million, Germany 84.6 million). "Japan has depreciated yen." Mostly, this (weakening of yen) is long-term and inevitable. You see, Japan has been fighting deflation for more than three decades. It introduced the first negative interest rates in the world. On the other hand, US has been fighting high inflation for a year, and its central bank (Federal Reserve) has raised interest rates. If you are an investor, you will move money from Japan and elsewhere (including China) to US, so dollars appreciates (relative to all other currencies, including renminbi).
(c) In economics, recession starts after two consecutive quarters of negative growth rates. However, UK's and Japan's are very mild (just a bit below zero).
—---------------------------------online version (print version does not have the last two paragraphs)
Economies in the U.K. and Japan shrank at the end of last year, underlining the widening gulf between robust growth in the U.S. and more anemic conditions in the rest of the world.

The decline in activity in Japan came as a surprise to economists and meant that it has slipped in the global rankings of the world’s largest economies behind Germany and into fourth place.

In the U.K., the economy shrank for the second consecutive quarter, the shorthand definition of a recession. The U.K.’s statistics agency Thursday said gross domestic product fell at an annualized rate of 1.4% in the final three months of 2023, compared with a 3.3% increase in the U.S. over the same period.

U.K. consumer spending, the main driver of the U.K. economy, fell over the second half of 2023 even as wage growth outpaced inflation for the first time in two years, boosting consumers’ purchasing power. Japanese consumers, who are still seeing prices rise faster than wages, also cut their spending in the final quarter.

The growth numbers from the U.K. and Japan mirror similarly weak conditions in much of continental Europe and China.

The divergence between the U.S. and the rest of the rich world is in large part a story of surprising U.S. strength. The U.S. grew much faster than economists had expected it would at the start of 2023, while Europe was badly hit by high energy prices from the Ukraine war and rising interest rates. Economists forecast the growth gap will narrow somewhat over the course of the year, but remain wide.

U.S. consumer spending has been more resilient in the face of rising interest rates than in other parts of the world. Government spending in the U.S. has also remained at historically high levels for periods outside of recessions, giving the economy an added boost.

The Organization for Economic Cooperation and Development earlier this month said it expects the U.S. economy to grow by 2.1% this year, while it sees the U.K.’s economy growing by 0.7% and Germany’s economy by 0.3%.

To be sure, the declines in activity in Europe and Japan have been relatively modest and are a reflection of slow-growing economies that by nature fall into contraction more often than those that have a higher sustained level of growth.

And while economic output declined in a number of rich countries as 2023 drew to a close, job markets in Europe and Japan remained tight, as they were in the U.S. As a result, many economists hesitate to describe the U.K. and Japanese downturns as full-blown recessions.

Policymakers expect economies to pick up as inflation ebbs in the months ahead.

“We’re seeing some signs of a pickup,” Bank of England Gov. Andrew Bailey told lawmakers Wednesday.

Japan’s unemployment rate fell to an 11-month low in December, and the Bank of Japan’s Tankan survey “showed that business conditions across all industries and firm sizes were the strongest they’ve been since 2018.”

Many economists expect the Bank of Japan to end its policy of negative short-term interest rates in either March or April, although the bank hasn’t confirmed that.

“We doubt that today’s GDP figures will prevent the Bank [of Japan] from ending negative interest rates in April,” said Marcel Thieliant, head of Asia-Pacific at Capital Economics.

The decline in its GDP during the second half of the year, and the yen’s weakness relative to the euro, meant that Japan dropped from third place in the global rankings of economic heft when measured in U.S. dollars.

Germany takes over the third-place spot behind the U.S. and China, despite Europe’s largest economy contracting during 2023.  Japan lost its second-place spot to China in 2010.

-----Megumi Fujikawa contributed to this article.