Japan Loses its Title as the Third Largest Economy to Germany

Unexpectedly, Japan slipped into a recession at the end of 2023, losing its title as the world’s third-largest economy to Germany, raising doubts about when the central bank would start abandoning the decade-long policy of continuous ultra-easy monetary policy.

Some analysts warn of another contraction in the current quarter due to weak demand in China, slowing consumption, and the suspension of production in a subsidiary of Toyota Motor Company. All of this points to a challenging path towards economic recovery and policy-making.

Yoshiki Shinki, Chief Executive Economist at the Dai-Ichi Research Institute, stated that “What is particularly noteworthy is the slowdown in consumption and capital expenditure, which are the essential pillars of domestic demand.”

And he added, “The economy will continue to lack momentum at the current time due to the absence of major growth drivers.”

Government data showed on Thursday that Japan’s gross domestic product (GDP) declined by 0.4 percent on an annual basis in the quarter from October to December, following a 3.3 percent decrease in the previous quarter, which was contrary to market expectations of a 1.4 percent increase.

In English language, the paragraph means: “Typically, two consecutive quarters of contraction are considered as a definition of a technical recession.”

Minister of Economy, Yoshitaka Shindo emphasized the need for strong wage growth to support consumption, which he described as “lacking momentum” due to rising prices.

Private consumption, which constitutes more than half of economic activity, decreased by 0.2 percent compared to market expectations of a 0.1 percent increase, as rising cost of living and warm weather led households to refrain from dining out and purchasing winter clothing.

Capital spending, which is another major driver of private sector growth, decreased by 0.1 percent compared to expectations of a 0.3 percent increase.
Consumer spending and capital expenditure contracted for the third consecutive quarter. (Reuters)