Japan slips into recession, Germany now world’s third-biggest economy

A cargo ship and containers are seen at an industrial port in Tokyo, Japan, Feb 15, 2022. REUTERS/Kim Kyung-Hoon/File photo

TOKYO  —Japan’s economy slipped into a recession as it unexpectedly shrank for two straight quarters on weak domestic demand, data showed on Thursday, raising uncertainty about the central bank’s plans to exit its ultra-easy policy sometime this year.

The surprisingly weak performance saw Japan lose its title as the world’s third-largest economy, replaced by Germany.

Gross domestic product (GDP) fell an annualized 0.4 percent in the October-December period after a 3.3-percent slump in the previous quarter, government data showed. It compared with a median market forecast of a 1.4-percent increase.

Two consecutive quarters of contraction are typically considered the definition of a recession.

Ultra-easy policy

The weak data may cast doubt on the Bank of Japan’s forecast that rising wages will underpin consumption, and justify phasing out its massive monetary stimulus.

READ: Inflation in Japan’s capital keeps slowing, takes pressure off BOJ

On a quarterly basis, GDP slid 0.1 percent against median forecasts of a 0.3-percnt gain.

Private consumption, which makes up more than half of economic activity, fell 0.2 percent, the data showed, against a 0.1 percent gain seen by economists.

READ: Japan capex growth slows amid fears of China’s slowdown, tame consumption

Capital expenditure, another key private-sector growth engine, fell 0.1 percent, compared with forecasts of a 0.3 percent gain.

External demand, or exports minus imports, contributed 0.2 percentage point to GDP as exports rose 2.6 percent from the previous quarter, the data showed.