As 2025 draws closer, fears of a global recession are growing, with several major economies showing clear signs of strain. A recession, characterised by two consecutive quarters of gross domestic product (GDP) contraction, reflects a significant decline in economic activity.
In Europe, Germany, the region’s largest economy, is under significant pressure. High energy prices, geopolitical tensions, and potential trade disruptions with the US and China are weighing heavily on its industrial sector, heightening fears of a slowdown.
The UK is on the brink of recession, with revised GDP figures showing zero growth in the third quarter of 2024, signaling stagnation.
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Japan, world’s third-largest economy, also unexpectedly slipped into recession earlier this year, driven by weak domestic demand. Average household debt in Japan rose to ¥6.55 million in 2023, exceeding average incomes, forcing many households to turn to loans with high interest rates.
New Zealand also entered a recession, with its GDP contracting by 1% in the July-September quarter, following a revised 1.1% decline in April-June. This six-month contraction marks New Zealand’s weakest economic performance since 1991, outside of the COVID-19 pandemic, according to Kiwibank Economics.
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In contrast, the US economy remains resilient. Goldman Sachs recently lowered the probability of a US recession in the next 12 months to 15%, down from an earlier forecast of 20%, citing a resilient job market.
This aligns with the long-term average probability of 15%, noted Jan Hatzius, Chief Economist and Head of Goldman Sachs Research, in the team’s report.
“There’s no sign of a recession. If markets and the economy are doing well, you might get some stress in pricing, leading to inflation,” said Bhaskar Laxminarayan of Julius Baer, suggesting that inflation, not recession, may be a bigger concern in the US.
However, the strength of the US dollar, driven by capital flows from emerging markets, has created significant headwinds for countries in Asia, excluding Japan, according to Rajeev Agrawal of Doordarshi India Fund.
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Adding to the uncertainty, Sudip Bandopadhyay of Inditrade Capital expects market volatility as President-elect Donald Trump plans to introduce a new tariff regime after his inauguration in January 2025.
These policies could disrupt global trade further, compounding economic pressures.
Mark Matthews of Bank Julius Baer highlighted the inherent difficulty of predicting recessions due to the complexity of economic systems. “Recessions are impossible to predict. Economists who forecast them are just lucky, that’s all,” he said. Current US GDP growth is strong at 3.1% for the last quarter.
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While signs of strain in global economies and financial markets point to potential risks in 2025, the inherent unpredictability of recessions leaves room for both caution and optimism.
The coming year could be challenging, but whether the US and other major economies enter a recession remains to be seen.