By Anjan Roy
Japan, once the most highly rated economy, is officially in recession, with its GDP shrinking for two consecutive quarters. United Kingdom, currently a pale shadow of its past glory and long discounted as a major economy, has also just landed in recession posing questions about Prime Minister Rishi Sunak’s economic policies.
Underlying all Japan’s problems is its shrinking population. Japan is showing the changes that overcome a country when population is shrinking rapidly. The once dominant industrial sector is facing shortages of hands. An ageing population is also showing falling domestic demand. Domestic consumption is down by close to 1% year on year in the last quarter.
The Japanese yen is eroding. It went down by 6.6% over last year, against the US dollar. Since the country is dependent on imported oils and gas, the costs have risen, even if the global prices have remained the same. In the same way, imported food items constitute 63% of total consumption. The rising yen would impose a fresh costs on consumers.
Germany, which is currently number three economy in the world in terms of its GDP size, is facing deep uncertainties on many fronts. German economy is rather uncomfortably dependent on exports for its survival. Its benchmark industry, automobiles, is facing existential threat from Chinese auto makers.
As the world is drifting fast towards electric vehicles, the big German cars are ill-suited to change over to electric traction from internal combustion engines. The electric cars demand better technology for energy storage and these need specialised metals. Battery technology so far is not one of the strong points of the German automobile industry.
Germany is demonstrating a basic shortcoming which is more or less evident in all the developed economies in Europe. These countries are facing a twin problem of lacklustre domestic demand as well as shortages of working hands and skilled personnel.
These countries are ageing fast and as a result, they are facing shortages of workers. Some are seeking to overcome these shortages by liberalising immigration. Former German chancellor, Angela Merkel had followed particularly liberal immigration policy, but popular sentiments have turned adverse giving rise to far rights parties. Germany, in particular, is facing this shift in popular sentiments more acutely now than others.
The principal road block giving rise to all Germany’s woes is the uncertainty about energy supplies. Ms. Merkel had banked on cheap natural gas and other energy supplies from Russia. In pursuit of that strategy, she had even gone to decommission all nuclear power plants, making the country abjectly dependent on Russian supplies. Now that supply had snapped, leaving the country facing a dire energy crisis.
Above all, China, which had long established itself as the second largest economy of the world, and romantically viewing the prospect of becoming the number one in the shortest possible time, is suddenly in the throes of a deep self-made crisis. Its property sector is dragging down the entire economic super-structure.
As if there was nothing better to do, the Chinese supreme leader, Xi Jinping has been seized with the idea of cutting its economic tsars to size. The widely successful technology entrepreneurs of China, starting from Jack Ma, have been virtually throttled by the Chinese Communist Party. Jack Ma had proposed the largest IPO, which had to be jettisoned for comments he made which were not liked by the Chinese communist leadership.
Many other company chief executives have been punished by the top leadership.. Every now and then, chief executives of top firms vanished and then, long afterwards, reemerged as ended personalities unable to lead their former charges.
The latest in the punishment schedule has been the head of the securities markets in China. The Chinese stock market was going through a rough patch and the markets slid. That created deep uncertainties in the economy. The foreign investors had also withdrawn funds from the Chinese markets. No wonder that the market should tank.
However, the blame fell on the market regulator. Xi Jinping himself had taken a meeting to soothe, so to say, the investors. Instead, summary sacking of the regulator had further fouled up the investment prospects. The markets are expecting some big sops from the government. But little has been done so far to stimulate the economy and the steps taken did not make much of a difference either.
The acts of omissions and commissions of the Chinese government, rather the Chinese Communist Party, had spoiled the confidence of the foreign investors in China and funds are being withdrawn. This stands in sharp contrast to the merry days when foreign investors were competing with one another to invest in the country.
China being such a big economy and a large market for industrial raw materials and commodities, its dire straits mean bad news for many economies across the globe.
Nonetheless the world economy is continuing to grow and fairly steadily. The global GDP growth is estimated to notch up to 3% in 2023, which is remarkable in the present context. Unemployment rate is also inexplicably low and employment growth is robust in USA. The latest estimates put creation of fresh employment in America at 355,000.
America, the principal engine of growth for the rest of the world, has what “The Economist” described as the gravity defying growth. The US central bank had followed a high interest rate policy to fight rising prices. It had swung from an excessively accommodating monetary policy following financial crisis to a step by step hikes in the policy rates.
Every economist worth his name betted on America entering into recession. But USA has chugged on notwithstanding without stumbling into a recession. US domestic demand is buoyant.
Even in the midst of an early recession, the observers believe the Japanese economy will climb out of a recession shortly. Nikkei, the Japanese stock market index, is at a record high at 38k and the index is rising still.
There is currently every reason why the global economic situation should turn turtle and nosedive into a deeper fall. After all, wars are raging in Europe and in the Middle East. The principal route for global trade, via the Red Sea and through the Suez Canal is increasingly unusable given the Houthi rebels threat at international shipping.
America and China are having skirmishes in the South China Sea and over Taiwan. Sometimes these are looking too close for comfort. Any war between the two super-powers could be disastrous. Russia-China nexus is a cushion and support for Iran, which is always seeking ways to settle score with America and the West. Any heightened clashes could flare up into a larger confrontation.
Some analysts of the scene are describing that the world is facing a “Poly Crisis”, some are describing it as the “New Global Disorder” and so on.
The defiant growth of the globe is a riddle which some of the economists are now seeking to explain. One study indicates that any adverse news is worn out in course of a couple of months and the major players adjust to its downside effects. It looks that this is the way for survival and maybe we are entering the era of a new chaos economics. (IPA
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