Japan Slips Into Recession, Loses Spot as World's No. 3 Economy

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Facts

• The Japanese economy declined in Q4 last year due to four-decade high inflation and a weak yen despite projections of moderate growth, pushing the country into a technical recession after economic contraction was reported in two straight quarters.¹
• According to the latest data from Japan's Cabinet Office, its GDP fell by 0.4% in the final three months of 2023, compared to a year earlier, after shrinking by 3.3% in Q3.²
• Although external demand helped boost exports of goods and services, it was the only category that made a positive contribution to the economy.³
• Accounting for over half of GDP, private consumption declined by 0.2% in the fourth quarter, as households reportedly tightened discretionary spending due to rising living costs.⁴
• With this preliminary nominal GDP for 2023, Japan has lost its status as the world's third-largest economy by some $200B to Germany, whose population is about two-thirds that of Japan's.⁵
• This is the second time Japan has fallen in this ranking in roughly a decade and a half. Earlier, China claimed the position of the world's No. 2 economy after the US in 2010.⁶

Sources: ¹New York Times, ²BBC News, ³CNN, ⁴Forbes, ⁵NHK and ⁶The Japan Times.

Narratives

• Narrative A, as provided by Nikkei Asia. Things look bleak for theJapanese economy. While the Q4 contraction may have been due to a trend in saving money due to inflation, a third consecutive decline is likely between January and March 2024 amid falling exports.
• Narrative B, as provided by Asia Fund Managers. There's room for optimism in Japan, as available data for the current quarter indicates a potential recovery based on exports and on private consumption since inflation is stabilizing and wages are expected to grow.

Predictions