U.K. real GDP shrank by 1.4% in the fourth quarter of 2023 following a 0.3% fall in the quarter before.
Japan also had two consecutive quarters of shrinking real GDP—3.3% in the third quarter and 0.4% in the fourth.
U.S. real GDP grew 3.3% in the fourth quarter.—Investopedia, February 16, 2024.
What is a recession?
A recession is a period during which real GDP decreases—its growth rate is negative—for at least two successive quarters.
The National Bureau of Economic Research, which dates the U.S. business cycle phases and turning points, defines recession as “a period of significant decline in total output, income, employment, and trade, usually lasting from six months to a year, and marked by contractions in many sectors of the economy.”
What are the four components of aggregate expenditure that might shrink in a recession?
GDP, Y, equals aggregate expenditure of which the four components are personal consumption expenditure, C, investment, I, government expenditure on goods and services, G, and net exports, NX. That is:
Y = C + I + G + NX.
Any of these four components of aggregate expenditure might shrink to bring recession.
Which components of aggregate expenditure decreased to bring recession to the U.K. and Japan?
The United Kingdom
A fall in consumption expenditure and net exports brought the U.K. recession. Government expenditure on goods and services increased and investment was flat with a fall in the third quarter and matched by a rise in the fourth quarter.
Figure 1 shows the U.K. data.
Use this link to see the detailed U.K. data.
Japan
A fall in consumption expenditure, investment, and government expenditure brought the recession in Japan. Only net exports increased.
Figure 2 shows the data for Japan.
Use this link to see the detailed data for Japan.
Which components of aggregate expenditure increased to bring real GDP growth to the United States?
An increase in consumption expenditure, investment, and government expenditure brought strong expansion in the fourth quarter of 2023 in the United States. Only net exports decreased.
Investment in new capital increased at the fastest pace, and if maintained might increase the long-term growth rate of real GDP.
Slow growth and recessions in the rest of the world are the source of the decrease in U.S. net exports.
Figure 3 shows the U.S. data.
Use this link to see the detailed US data.
Now take a short quiz to ensure you understand what you just read.