Japan is no longer the world’s third largest economy after unexpectedly slipping into recession at the end of last year, according to official figures released on Thursday. Germany has now moved into third place in terms of nominal GDP.

According to The Iran Project,GDP shrank by an annualized 0.4% in the fourth quarter of last year, following a 3.3% slump in the previous quarter. This confounded market forecasts of a 1.4% increase over the final three months of the year. A technical recession is broadly defined as two consecutive quarters of contraction.

During the fourth quarter, private consumption fell by an annualized 0.9%, and corporate investment dropped 0.3%. Exports rose 11%, while imports increased 7.0%.

“Service consumption has hit a lull, goods prices continue to increase, and because of the warm winter, clothing consumption was lackluster from October onward,” a government official said.

Japanese households have been struggling with a rising cost of living and declining real wages that led to a 0.2% drop in private consumption, which accounts for more than half of economic activity in the country.

In dollar terms, Japan’s GDP stood at $4.2 trillion at the end of 2023, versus $4.5 trillion for Germany.
“Two consecutive declines in GDP and three consecutive declines in domestic demand are bad news, even if revisions may change the final numbers at the margin,” Stefan Angrick, senior economist at Moody’s Analytics, told Reuters, commenting on the news.

“This makes it harder for the central bank to justify a rate hike, let alone a series of hikes.”