A slowdown in the Japanese and UK economies and emerging global risks

- GDP of world's two largest economies negative for two consecutive quarters: Geopolitics shocks global economy

Last week, the world's two largest economies, Japan and the United Kingdom, said their gross domestic product (GDP) growth had been negative for two consecutive quarters. Economists generally consider this a sign that the economy is headed for recession. Because of this, Japan may slide down the list of largest economies.

Germany's GDP may exceed Japan's. In such a scenario, Japan may now become the fourth largest economy in the world instead of the third. Not that Germany is in very good shape either.

Germany, once the engine of growth for the euro zone, is now its weakest link. For two decades, Germany's export-oriented, manufacturing-based economy performed well, supported by China's productivity and demand and easy access to cheap natural gas from Russia. Now both these factors of growth have become limited due to geopolitical reasons.

In 2024, Germany is projected to achieve annual growth of 0.2 percent. Last year there was a decrease of 0.3 percent. Politics has also played a role in the United Kingdom's recession. The effects of the decision to leave the European Union in 2016 are now visible. Additionally, problematic local politics also mean that the country is failing to build new housing and infrastructure. Weak consumer demand has pushed the economy into recession.

Today, politics has emerged as a threat to economic development all over the world. Even the US, one of the better performing countries in the global economy, is not immune to this risk. While US markets are soaring to record highs, companies have begun to cite the threat of domestic boycotts over the Red Sea attacks and disagreements over Israel and Palestine over their profits this earnings season.

Meanwhile, China, the world's second-largest economy, has also moved away from its days of rapid growth. Last week, the People's Bank of China decided not to cut interest rates.

However, the country is grappling with deflation amid weak demand and a real estate crisis. The size of high-value real estate transactions in China last month was one-third less than the same month in 2023. Given the size and growth of China's GDP, market reforms are essential if growth is to be restored. But here too there is political interference.

To reform real estate, China will need to establish independent centers of power within local governments and the private sector. He doesn't want to do that. The only exception is Japan.

Ultimately, its economy is bound to decline as it also faces population-related challenges. Its problems are not political but structural, unless it is argued that the country cannot make enough social reforms to motivate people to have more children because of political dysfunction.

Global economy has suffered many shocks due to geopolitics. Ukraine war affects fuel prices, US-China rivalry disrupts supply chain. Now instability is visible in West Asia. Many countries that have not recovered properly after Corona are in trouble due to failure to maintain world order.