Japan’s economy slipped into a recession at the end of last year, losing its title as the world’s third-biggest economy to Germany.
The nation’s economic indices contracted for the second straight quarter following a slowdown in consumer and business spending at the end of last year.
Economic experts warn of another contraction in the current quarter as weak demand in China, sluggish consumption and production halts at a unit of Toyota Motor Corporation.
Several businesses and consumers who are struggling with inflation at four-decade highs, a weak yen and worsening cost of living.
Japan’s economy, now slightly smaller than Germany’s, fell one point lower to become the world’s fourth-largest economy.
Gross domestic product fell 0.4 percent in October through December after a revised 3.3 percent decline in the previous three-month period. Experts had been projecting a fourth-quarter growth of around 1 percent.
These figures casts doubts on Japan’s economy. While, Corporate profits are at record highs, the stock market is surging and unemployment rates are low, two key drivers for the economy – business investment and consumer spending are dropping.
Chief economist at Mitsubishi UFJ Research and Consulting, Shinichiro Kobayashi said the economy is “polarised” because of higher prices. When corporate profits jump, the prices of goods also go up, but wages have not kept up and consumers are reluctant to spend, he said.
While the figures are preliminary, the negative growth in two straight quarters indicates that the economy is technically in recession.
The soft economic data also complicates an upcoming decision from the Bank of Japan about whether to move ahead with the country’s first interest rate hike since 2007.
Japan’s central bank has stubbornly maintained policies meant to keep interest rates low and to spur spending — a remnant of its long-running battle to combat deflation. Some economists speculate that the central bank may finally change direction and exit its decade-long ultra-loose monetary policy as early as April if the economy improves.
