Japan Slides Into Recession, With China to Blame

The world’s third largest economy fell into recession as the government announced a second quarter of contraction. Although Japan’s economy is largely different from the large economies of the United States, Germany and China, some of its problems are based on an overall global slowdown.

According to the Japan Times:

The economy contracted in the third quarter on sluggish business investment, confirming what many economists had predicted: The nation fell into its second recession since Prime Minister Shinzo Abe took office in December 2012.

Gross domestic product declined an annualized 0.8 percent in the three months ended Sept. 30, following a revised 0.7 drop in the second quarter, the Cabinet Office said Monday. Economists had estimated a 0.2 percent decline for the third quarter.

Concerns about a Chinese-led slowdown apparently weighed on consumption, which accounts for around 60 percent of Japan’s GDP, and capital spending, raising the bar for Abe’s government to stimulate demand and steer the economy toward growth.

China’s GDP growth dropped to 6.9% in the most recently reported quarter. By almost any measure, that is extraordinary, given the country’s size. Some economists believe China has overstated its growth and that it may be closer to 5%. That might be considered a “recession,” based on China’s history of double-digit expansion.

Nervousness about China’s growth and its global implications recently has been highlighted in global GDP forecasts from the International Monetary Fund and the World Bank. If the two organizations are correct, China’s GDP is the most likely reason the rest of the world may suffer an economic faltering. Japan is only the first victim. The odds are growing that the already weak European Union economy could be driven into recession because China is such a significant trading partner. And if the EU dips into two quarters of negative growth, most of the world’s largest economies will have gone into another period of recession. The dominoes will have begun to fall.

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