The World Staggers... Only the US Economy Runs Solo

Japan -0.1%·UK -0.3% Contraction…US 3.3% Growth
Foreign Media "Impact of Increased Household Consumption and Government Spending"

While major economies around the world are faltering, only the United States is recording growth.

On the 15th (local time), AP News and The Wall Street Journal (WSJ) reported that while major advanced economies such as Japan and the United Kingdom continue to experience negative growth, only the U.S. is maintaining its growth momentum.

Japan and the UK announced the previous day that their gross domestic product (GDP) shrank by 0.1% and 0.3%, respectively, compared to the previous quarter. In contrast, the U.S. recorded growth for six consecutive quarters during the same period, with a preliminary GDP increase of 3.3%. WSJ explained, "The GDP figures for the UK and Japan reflect the fragile conditions in most countries, including the European continent and China." China’s stock market recently plunged due to a slowdown in economic recovery and a worsening real estate market.

Earlier this month, the Organisation for Economic Co-operation and Development (OECD) forecasted that the U.S. economy would grow by 2.1% this year. Meanwhile, the UK is expected to grow by only 0.7%, and Germany by 0.3%. Recently, the International Monetary Fund (IMF) revised upward its global economic growth outlook for 2024, citing the U.S. economy’s stronger-than-expected resilience as one of the reasons.

Initially, many economists predicted that the U.S. economy would inevitably enter a recession last year. However, the U.S. grew at a larger-than-expected rate, while Europe was hit by high energy prices and interest rates due to the Ukraine war.

Foreign media analyzed that increased household consumption and government spending were the causes of this gap. The U.S. government spent $5 trillion on COVID-19 relief between 2020 and 2021. This large-scale support, compared to other countries, helped stabilize household finances and drove household consumption through 2023. AP News stated, "The early COVID-19 government stimulus helped households overcome inflation, and now wage increases are helping to keep up with high prices."

WSJ reported, "Despite wage growth outpacing inflation for the first time in two years, consumer spending in the UK declined in the second half of last year," and "In Japan, where prices are rising faster than wages, consumer spending also decreased." It added, "U.S. consumer spending was more resilient than in other countries despite rising interest rates," and "U.S. government spending, except during recession periods, has remained historically high, injecting additional vitality into the economy."

AP News explained that the Biden administration’s expansion of subsidies for manufacturing plants and infrastructure construction also contributed to some extent. Although the Republican Party criticized the increase in government spending for fueling inflation, about one-quarter of last year’s U.S. economic growth came from government spending.

Diane Swonk, KPMG’s chief economist, highlighted policies such as mortgages. For example, most U.S. homeowners have 30-year fixed-rate mortgages, so even though the Federal Reserve raised mortgage rates sharply from 3% to 6.7% over the past two years, they were hardly affected. In contrast, the UK renews interest rates every 2 to 5 years, making it more vulnerable to rate hikes.

The possibility of a recession in the U.S. economy cannot be ruled out. Inflation could accelerate again, and excessive borrowing by the U.S. government could raise borrowing costs. The commercial real estate crisis is also a concern.

The UK and Japan are expecting economic recovery this year. Andrew Bailey, Governor of the Bank of England (BOE), said on the 14th, "We are seeing signs of recovery." WSJ reported, "Japan’s unemployment rate fell to its lowest in 11 months in December last year, and the Bank of Japan’s Tankan survey showed business conditions at their strongest since 2018."

Solita Marcelli, Chief Investment Officer for the Americas at UBS Global Wealth Management, said, "The most important point is that market performance reflects a thriving economy rather than investors’ irrational ‘animal spirits.’"

This content was produced with the assistance of AI translation services.