World’s Major Economies Fall Behind U.S.
2 min
Economies in the U.K. and Japan shrank at the end of last year, underlining the widening gulf between robust growth in the U.S. and more anemic conditions in the rest of the world.
The decline in activity in Japan came as a surprise to economists and meant that it has slipped in the global rankings of the world’s largest economies behind Germany and into fourth place.
In the U.K., the economy shrank for the second consecutive quarter, the shorthand definition of a recession. The U.K.’s statistics agency Thursday said gross domestic product fell at an annualized rate of 1.4% in the final three months of 2023, compared with a 3.3% increase in the U.S. over the same period.
U.K. consumer spending, the main driver of the U.K. economy, fell over the second half of 2023 even as wage growth outpaced inflation for the first time in two years, boosting consumers’ purchasing power. Japanese consumers, who are still seeing prices rise faster than wages, also cut their spending in the final quarter.
The growth numbers from the U.K. and Japan mirror similarly weak conditions in much of continental Europe and China .
The divergence between the U.S. and the rest of the rich world is in large part a story of surprising U.S. strength . The U.S. grew much faster than economists had expected it would at the start of 2023, while Europe was badly hit by high energy prices from the Ukraine war and rising interest rates. Economists forecast the growth gap will narrow somewhat over the course of the year, but remain wide.
U.S. consumer spending has been more resilient in the face of rising interest rates than in other parts of the world. Government spending in the U.S. has also remained at historically high levels for periods outside of recessions, giving the economy an added boost.
The Organization for Economic Cooperation and Development earlier this month said it expects the U.S. economy to grow by 2.1% this year, while it sees the U.K.’s economy growing by 0.7% and Germany’s economy by 0.3%.
To be sure, the declines in activity in Europe and Japan have been relatively modest and are a reflection of slow-growing economies that by nature fall into contraction more often than those that have a higher sustained level of growth.
And while economic output declined in a number of rich countries as 2023 drew to a close, job markets in Europe and Japan remained tight, as they were in the U.S. As a result, many economists hesitate to describe the U.K. and Japanese downturns as full-blown recessions.
Policymakers expect economies to pick up as inflation ebbs in the months ahead.
“We’re seeing some signs of a pickup,” Bank of England Gov. Andrew Bailey told lawmakers Wednesday.
Japan’s unemployment rate fell to an 11-month low in December, and the Bank of Japan ’s Tankan survey “showed that business conditions across all industries and firm sizes were the strongest they’ve been since 2018.”
Many economists expect the Bank of Japan to end its policy of negative short-term interest rates in either March or April, although the bank hasn’t confirmed that.
“We doubt that today’s GDP figures will prevent the Bank [of Japan] from ending negative interest rates in April,” said Marcel Thieliant , head of Asia-Pacific at Capital Economics.
The decline in its GDP during the second half of the year, and the yen’s weakness relative to the euro, meant that Japan dropped from third place in the global rankings of economic heft when measured in U.S. dollars.
Germany takes over the third-place spot behind the U.S. and China, despite Europe’s largest economy contracting during 2023. Japan lost its second-place spot to China in 2010 .
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The federal budget has rattled property investors. But the biggest mistake isn’t the tax changes, it’s the conclusion many are drawing from them.
2 min
The recent budget has forced a reckoning for property investors.
Negative gearing now restricted to new residential builds, the CGT discount gone and on paper, the numbers look different.
And many investors are responding by pivoting toward yield, prioritising cash flow over capital growth in a way that property strategists say misses the point entirely.
“The debate has shifted to yield versus growth as if they are opposing forces,” says Abdullah Nouh, founder of Melbourne-based buyers’ agency Mecca Property Group. “But that framing is itself the mistake.”
Nouh, who works with high-net-worth families and investors on long-term acquisition strategy, argues that capital growth remains the primary driver of genuine wealth creation and that the post-budget environment has made quality assets more important, not less.
The numbers make his case plainly. An additional $500 per week in rental income is welcome. A prestige asset appreciating by $1 million over a market cycle is transformative.
These are not equivalent outcomes, and portfolios built around yield at the expense of location and land value tend to generate income while wealth stands largely still.
The more nuanced shift Nouh is seeing among sophisticated investors is a move toward assets where both outcomes can be engineered simultaneously – established homes on substantial land in quality locations, where the existing dwelling can be repositioned, rental returns improved, and the underlying land value compounds independent of what sits on it.
For investors with existing equity, commercial property is also entering the conversation in a more serious way.
Prestige industrial assets, medical centres and long-leased essential retail offer income profiles that residential property in most capital city markets cannot currently match: longer lease terms, tenants covering outgoings, and greater predictability than the residential tenancy cycle.
“The investors who build lasting wealth are rarely the ones who chased yield or growth exclusively,” says Nouh.
“They are the ones who built a strategy they could sustain – one that generated enough income to hold quality assets through multiple cycles while those assets compounded in value.”
The budget has changed the settings. It has not changed the fundamentals.
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