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The United Kingdom slipped into recession, with its worst gross domestic product (GDP) performance in 2023 in years. Japan lost its spot as the world’s third-largest economy. Its economy is now the world’s fourth-largest after it contracted in the last quarter of 2023 and fell behind Germany. 

What is a Recession?

• A recession is commonly defined as two consecutive quarters of contraction.
• A recession is a significant decline in economic activity that lasts for months or even years.
• Experts declare a recession when a nation’s economy experiences
  • negative gross domestic product (GDP)
  • rising levels of unemployment
  • falling retail sales
  • contracting measures of income and manufacturing for an extended period of time

What causes recessions?

These phenomena are some of the main drivers of a recession:

• A sudden economic shock: An economic shock is a surprise problem that creates serious financial damage. 
• Excessive debt: When individuals or businesses take on too much debt, the cost of servicing the debt can grow to the point where they can’t pay their bills.
• Asset bubbles: When investing decisions are driven by emotion, bad economic outcomes aren’t far behind.
• Too much inflation: Inflation is the steady, upward trend in prices over time.
• Too much deflation: While runaway inflation can create a recession, deflationcan be even worse.

Why UK, Japan fell into recession?

How would it impact India?

• While India’s GDP has been performing relatively better, no one is immune to economic problems, in the era of globalisation.
• External headwinds are poised to hurt India’s economy too, as service exports are a major part of revenue generated by India’s IT industry and global price rise can make India’s imports expensive. 
• India & the UK:Negotiations between India and the United Kingdom for the proposed free trade agreement (FTA) are at an advanced stage, but India is keen to safeguard its interests.
• India & Japan:According to the MEA’s October 2023 report, bilateral trade totaled US$ 21.96 billion during FY 2022- 23. Exports from Japan to India during this period were US$ 16.49 billion and imports were US$ 5.46 billion.

What is India’s future prospective?

• Shrinking gap: The gap between developed countries and emerging nations is shrinking, with India likely to overtake Japan in nominal GDP in a few years.
  • India is likely to overtake Japan to become the world’s third-largest economy with a GDP of USD 7.3 trillion by 2030, S&P Global Market Intelligence said in its issue of PMI in October 2023.
• Beneficial diversification: India is benefiting from growing interest from multinationals, which see the country as a key alternative manufacturing base in the context of developed economies' supply chain diversification strategies.

What India can do to sidestep the recessionary trend?

• India is currently the world's fifth-largest economy, placed behind the US, China, Japan and Germany.
• For India, it's crucial to continue focusing on-
  • strengthening domestic demand
  • enhancing productivity
  • promoting sectors with high growth potential
  • diversifying trade partners
  • reducing dependency on a single market for exports and imports