Data and statements from government authorities continue to be released showing that the global economic recession trend is accelerating.
Germany's Bundesbank warned in its monthly report on Monday that the economy is likely to contract in the first quarter of this year due to lower output in the final quarter of 2023.
“Stress factors will likely remain in the first quarter,” the central bank said, meaning “economic output may decline slightly again.” With little sign of recovery, “the German economy will likely enter a technical recession, defined as two consecutive quarters of negative growth.”
Last year, Germany's economy shrank by 0.3%, making it the worst performer among major economies.
The Bundesbank's warning follows Economy Minister Robert Habeck's statement last week that the government would cut its already low growth forecast for 2024 from 1.3% to just 0.2%, and from 1.5% to 1% next year. became. It is highly doubtful whether even such reduced estimates will be achieved.
The German Bundesbank pointed to the deteriorating global economic outlook and its impact on Germany, saying that overseas demand for German products “has recently been on a sharp decline.”
European Central Bank President Christine Lagarde attends a press conference after the ECB Executive Board meeting held in Frankfurt, Germany, on January 25, 2024. [AP Photo/Michael Probst]
He also noted that the European Central Bank is determined to maintain its high interest rate regime until there is evidence that wage growth and demand are sufficiently contained. The issue of wages was at the center of ECB President Christine Lagarde's remarks after the central bank's board meeting on January 25.
The Bundesbank said consumers “probably remain cautious about their spending” and rising borrowing costs “are likely to continue to constrain investment.”
The fact that Germany has become the world's third largest economy in US dollar terms despite its continued weakness is a sign of the decline of the global economy as a whole. This replaced Japan, which also fell into a technological recession, with growth contracting by 0.3% in the fourth quarter, following 3.4% growth in the third quarter.
Stefan Anrik, chief economist at Moody's Analytics in Tokyo, told the Financial Times that two consecutive quarters of negative growth had spurred “a series of disappointing data releases.”
A Bloomberg report highlighted his assessment.
“Personal consumption decreased by 0.2% as households tightened their budgets due to rising living costs.Wage increases lagged behind inflation, so household spending in December decreased by 2.5% from the same month last year, marking the 10th consecutive month of decline. Business spending also slumped in the previous quarter, falling 0.1%.”
Japan's economy received a slight boost from increased exports. However, this will not last long. In its quarterly outlook released last month, the Bank of Japan said the economy is “expected to be under downward pressure from the slowing pace of recovery in overseas countries.”
One of the important overseas countries for Japan and many other countries is China, which served as the most important source of growth for the world economy after the 2008 global financial crisis.
China's growth rate last year was 5.2%, the lowest in 30 years, and it is questionable whether it will even reach this level in 2024. All eyes will be on the National People's Congress, which will begin on March 5, when the Xi Jinping administration will be inaugurated. Announcing next year's economic plan.
This is especially true in Southeast Asia. Malaysia announced this week that its economy contracted by 2.1% in the final quarter compared to the previous three months.
A statement from the central bank said growth was “slowing in a challenging external environment” due to a slowdown in global trade, a global technology downturn, geopolitical tensions and tighter monetary policy.
Due to the deterioration of the situation, the Malaysian ringgit has fallen to its lowest level ever reached during the 1998 Asian financial crisis. Other countries in the region, including Indonesia and the Philippines, are also experiencing economic slowdowns.
Decisions in China will be closely monitored, but what they result in is another matter.
So far, Chinese authorities have taken only small steps aimed at boosting the vital real estate and construction sector, lowering some interest rates and stemming a decline in the stock market. Nothing has been done to substantially boost the economy.
On Sunday, Premier Li Qiang told a cabinet meeting that “real and strong” action was needed to boost confidence in the economy. He said officials “need to do more to contribute to boosting trust and expectations and ensure consistency and stability in policy-making and enforcement,” according to state news agency Xinhua. .
However, no concrete measures were announced as all the data continues to show that the economic situation is deteriorating amidst the worst deflation in 15 years.
Up until now, China has received large-scale investment from abroad to spur growth. But the latest data released by the State Administration of Foreign Exchange on Sunday shows a sharp decline.
They revealed that foreign capital inflows in 2023 were around $33 billion, down 82% from the previous year and the lowest annual figure since 1993.
This sharp decline is the result of two factors. One is the continued escalation of economic warfare measures by the United States against China, especially in the high-tech sector, with the Biden administration continuing to add bans and restrictions on critical components, and the other is the economic outlook. This is a worsening of Chinese economy.
As the economic downturn accelerates, there is a good chance that the United States will tighten its measures against China. In recorded interviews with the FT this week, two senior Treasury officials said that if China tries to solve its industrial overcapacity problem by introducing cheaper products such as electric cars and lithium-ion batteries, the United States and its allies must act. He said he would wake up. and solar panels on the global market.
“China's industrial support policies and macro policies that focus on supply, rather than thinking about where demand comes from, are both moving us towards a situation where China's excess production capacity will hurt the world market. We are concerned about this,'' said Jay Shambaugh, Under Secretary of International Affairs.
The issue will be a “key part” of Treasury Secretary Janet Yellen's agenda when she visits China later this year, the report said.
The U.S. threat signals a readiness to double down on disastrous policies like those of the 1930s, when tariffs and other restrictions played a key role in deepening the Great Depression and creating the conditions for World War II. be.
These measures were irrational and reactionary at the time, and have become even more so in the era of globalized and integrated production. As already noted, a third of last year's exports of electric cars, one of the products the United States has expressed concern about, came from the Shanghai factory of the American company Tesla.
But planned madness is just a further expression of the fundamental irrationality of capitalism and the nation-state system. It emphasizes the need to replace each with a global socialist economy where reason and conscious planning prevail, rather than a relentless struggle against everything that leads to reduced economic growth and ultimately war.
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