Japan’s economy has contracted unexpectedly because of weak domestic consumption, pushing the country into recession and causing it to lose its position as the world’s third largest economy to Germany.
Gross domestic product shrank at an annualized pace of 0.4% in the last three months of 2023, the Cabinet Office said on Thursday, after having contracted in the previous quarter. A recession is typically defined as two consecutive quarters of economic contraction.
The data confirms that Japan’s economy was the world’s fourth largest behind Germany in US dollar terms last year.
Private consumption — which accounts for half of the economy — declined by 0.2%, as Japanese consumers battled higher prices for food, fuel and other goods.
Japan imports 94% of its base energy requirements and 63% of its food, so the weak yen significantly contributes to a higher cost of living, Neil Newman, a Tokyo-based strategist at Japanmacro told CNN.
“Private consumption was particularly weak, [and] market expectations was for it to be flat,” he said. “Unfortunately this will get worse in January following the Sea of Japan earthquake. People stop spending in times of natural disasters.”
This is a developing story and will be updated.
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