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U.S. Recession Looms, Japan's Market Crashes: Onset of Financial Crisis?
Recently, news about the United States being on the verge of a recession has sparked heated discussions.
On the evening of August 2nd, the United States released employment data for July, showing a non-farm employment increase of 114,000 people, significantly lower than the expected 175,000, and a substantial decrease from the previous value of 179,000.
The unemployment rate further rose to 4.3%, higher than the previous 4.1% and exceeding the consensus expectations of analysts.
As a result, the U.S. stock market, bond market, and currency market all experienced significant declines.
According to data released by the U.S. Bureau of Labor Statistics for April to June, the U.S. economy was thriving, and the market was generally optimistic, with the U.S. stock market also making a strong rebound.
However, after the release of the employment data for July, the market widely worried that the United States was about to fall into a recession.
Even many analysts began to suspect that the previous U.S. employment data was falsified, and now the U.S. economy has severely deteriorated and can no longer be concealed.
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On August 5th, Jan Hatzius, the chief economist at Goldman Sachs, raised the probability of the United States falling into a recession in the next year from 15% to 25% in his report.
Based on the current employment data, Goldman Sachs expects that in order to prevent the economy from falling into a recession, the Federal Reserve will cut interest rates by 25 basis points each in September, November, and December.
If the employment data for August further deteriorates, it is highly likely that the interest rate will be cut by 50 basis points in September.The current high-interest-rate environment in the United States, coupled with the sluggish domestic consumption, has put significant pressure on technology and manufacturing companies, making layoffs the best option.
In April of this year, large technology companies such as Tesla, Google, and Apple could not withstand the impact of the economic downturn and announced large-scale layoffs.
According to the latest data, by the end of July, the number of unemployed people in the U.S. technology sector this year has exceeded 70,000.
Concerns about a U.S. economic recession have not only led to a significant drop in U.S. stocks, bonds, and the currency exchange rate but also ushered in a Black Monday for other countries' stock markets.
The Nikkei average index fell by 4,451 points, a drop of 12%, marking the largest decline since 1987, during which the circuit breaker mechanism was triggered twice.
The plummet of the Nikkei average index almost wiped out all the gains made this year, resulting in substantial losses for many investors.
Stock markets in other Asian countries were also grim.
The South Korean Composite Index fell by 8.77%, the FTSE Straits Times Index in Singapore fell by 4%, and the FTSE Malaysia Composite Index fell by 4.63%.
Others, such as India's SENSEX30, MSCI Vietnam, and Indonesia's Composite Index, also saw significant declines.
The Shanghai Composite Index fell by 1.54%, which is relatively mild compared to the percentage drops of these other indices.At present, Japan holds the most U.S. Treasury bonds, amounting to as much as $1.23 trillion, and may become the biggest victim when the time comes.
If the United States falls into a recession, will the world experience an economic crisis like the one in 2008?
Most likely, no.
In 2008, China's GDP was $4.327 trillion, only 30.7% of the United States, accounting for 7.1% of the world's GDP. Meanwhile, the U.S. GDP was $14.09 trillion, accounting for 23.1% of the world's GDP.
In 2023, China's GDP was $17.7 trillion, accounting for 16.9% of the world's GDP. The U.S. GDP was $27.4 trillion, accounting for 26.1% of the world's GDP.
In 2023, China's total GDP was equivalent to 64.6% of the United States, which is double the 30.7% in 2008.
This result was achieved even with a significant appreciation of the U.S. dollar.
Once the United States begins a cycle of interest rate cuts, the dollar will depreciate significantly, and the economic gap between China and the United States will narrow rapidly.
Considering that China's economic growth rate is more than twice that of the United States, if the dollar depreciates by 20%, China's GDP will exceed 80% of the United States.
After the United States' recession, as the world's largest manufacturing country, with its current economic size, China is fully capable of becoming the locomotive of the global economy.As long as the U.S. economy does not experience a hard landing, the impact on the global economy should be controllable.
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