Global news digest: Recession bells, Nvidia rebound, soaring stock prices

Mint’s Simple Facts section is a monthly update of key global economic data, linking together the major global developments worth watching. The accompanying analysis and charts try to explain how each story is making waves on the global stage, where it will go in the coming weeks, and whether it will affect India. This month, we explain how the economy fell into recession, Turkey’s endless inflation problem, and rising global temperatures.

Mint’s Simple Facts section is a monthly update of key global economic data, linking together the major global developments worth watching. The accompanying analysis and charts try to explain how each story is making waves on the global stage, where it will go in the coming weeks, and whether it will affect India. This month, we explain how the economy fell into recession, Turkey’s endless inflation problem, and rising global temperatures.

1. Slow down

Two G7 economies fell into technical recession (two consecutive quarters of declining GDP growth) in the quarter ending December. Japan’s economy fell by 3.3% on top of a 0.4% contraction in the September quarter, and has now lost the title of the world’s third-largest economy to Germany. The downturn was reportedly due to a depreciation in the yen, which fell by more than 18% against the dollar in both 2022 and 2023. The UK also reported negative economic growth in both quarters of the second half of 2023 – first by 0.1% and then by 0.3%. However, these contractions were relatively small, suggesting that the UK may currently be experiencing stagflation rather than a full-blown recession. The recession is not limited to these two economies. Israel, Finland, Germany and Ireland also contracted in the December quarter. For Ireland, it was the fifth consecutive quarter of economic slowdown.

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1. Slow down

Two G7 economies fell into technical recession (two consecutive quarters of declining GDP growth) in the quarter ending December. Japan’s economy fell by 3.3% on top of a 0.4% contraction in the September quarter, and has now lost the title of the world’s third-largest economy to Germany. The downturn was reportedly due to a depreciation in the yen, which fell by more than 18% against the dollar in both 2022 and 2023. The UK also reported negative economic growth in both quarters of the second half of 2023 – first by 0.1% and then by 0.3%. However, these contractions were relatively small, suggesting that the UK may currently be experiencing stagflation rather than a full-blown recession. The recession is not limited to these two economies. Israel, Finland, Germany and Ireland also contracted in the December quarter. For Ireland, it was the fifth consecutive quarter of economic slowdown.

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2. An economy devastated by war

Israel's all-out war on the Gaza Strip since October 7 last year has hit the country's economy hard. The country's GDP plunged 19.4% in the December quarter. This is the first estimate since the start of the war. In the same quarter of the previous fiscal year, the country's economic growth rate increased by 6.4%. Private spending has shrunk, and fixed investment has also declined. Private consumption fell by 26.9% on an annualized basis, while fixed investment fell by nearly 68%. The war has also led to a labor shortage as Israel mobilized 300,000 men and women as military reservists, the report showed. In addition, since the start of the war, many Palestinian workers from the occupied West Bank have been prohibited from crossing the border to Israel for work. As a result, many industries, especially construction and agriculture, have been affected. However, government spending has surged due to war-related expenses, compensation to victims' families, and evacuation measures.

3. Türkiye’s Melancholy

The Turkish economy has long been under pressure from rapidly rising prices. In January, inflation was close to 65% year-on-year, the highest since November 2022. Month-on-month, prices rose 6.7%, the largest increase since August 2023. Inflation was reportedly further fueled by the government's announcement in December that it would increase the minimum wage by 49% to help people cope with rising living costs. The move was made ahead of local elections in March 2024. The “hotels, cafes and restaurants” sector saw the largest annual price increase (92.3%), followed by education (79.8%) and healthcare (78.6%). In an effort to reduce inflation, the central bank has announced eight consecutive interest rate hikes since May 2023. The lira is also under pressure, and on February 21, the lira fell to a record low against the dollar.

4. Global “Warning”

Last month, the world recorded its hottest January since at least 1940, with the global 12-month average temperature (February 2023-January 2024) rising past the critical 1.5°C above pre-industrial times, the European Union's Copernicus Climate Change Service (C3S) said. Rising temperatures and climate change are already causing problems for some countries, with agricultural economies taking a hit. More than a decade ago, climate scientists identified 1.5°C as the threshold beyond which some impacts of climate change become irreversible. It refers to the difference between the global average surface temperature and the pre-industrial climate of the late 19th century. In 2015, world leaders from 195 countries signed the landmark Paris Climate Agreement, pledging to limit temperature increases to this threshold. However, in November 2023, a UN report said there was a huge gap between planned actions and what was needed.

Strong gains in the shares of US-based chipmaker Nvidia have made it a strong contender to join the club of the world's largest companies. In February, the company surpassed the $2 trillion market cap, albeit briefly, after issuing a strong revenue forecast. So far, Nvidia's shares have risen nearly 60% in 2024. As a leading chip supplier in the artificial intelligence (AI) revolution, the company's market cap has surpassed that of Amazon and Alphabet. As several companies begin to adopt AI, the company has attracted a lot of interest and will benefit from the technological shift. The strong rise in Nvidia's shares is not only good news for the United States, but its spillover effect has also boosted Asian technology stocks. As a result, Japan's Nikkei 225 index broke the record set in 1989 last week. The surge in Nvidia's shares has brought optimism at a time when recession bells are ringing in Europe.

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