Japan’s entry into recession has enabled Germany to surpass it as the world’s third-largest economy.

Japan has unexpectedly slipped into recession due to weak domestic consumption, leading to its displacement from the position of the world’s third-largest economy by Germany.

The Cabinet Office reported that Gross Domestic Product (GDP) contracted at an annualized rate of 0.4% in the final quarter of 2023, following a previous quarter of contraction. A recession is typically defined as two consecutive quarters of economic decline.

This data confirms that Japan’s economy ranked fourth globally in terms of US dollar value last year, trailing behind Germany. Private consumption, constituting half of Japan’s economy, declined by 0.2% as consumers grappled with rising prices for food, fuel, and other goods.

Japan heavily relies on imports for its energy and food needs, with 94% of its base energy requirements and 63% of its food being imported. Consequently, a weak yen exacerbates the cost of living, as noted by Neil Newman, a Tokyo-based strategist at Japanmacro.

Newman highlighted that private consumption was notably weak, contrary to market expectations of it remaining flat. He also noted the potential worsening of the situation in January following the Sea of Japan earthquake, as people tend to curtail spending during natural disasters.

This story is evolving and will be updated accordingly.