Japan Slides Into Shock Recession

Japan's economy unexpectedly slid into recession as housing and business investment declined following a sales tax hike, further clouding the outlook for the global economy. The world's third-largest economy contracted at a 1.6% pace in the July-September quarter, the government said today, contrary to predictions it would grow after a big drop the previous quarter. An economy is generally considered to be in recession when it fails to grow for two consecutive quarters. The surprise recession in Japan deepens uncertainty about China, where growth is slowing, and for the 18-country eurozone that grew only 0.2% in the same quarter.

Prime Minister Shinzo Abe is expected to put off another sales tax hike, and some analysts believe the dismal economic figures could trigger new elections. Japan emerged from its last recession just as Abe took office in December 2012, vowing to restore the nation's economic vigor after two decades of stagnation. But the country is struggling to regain momentum as its population declines and ages. Apart from its automakers, many of its manufacturers have lost their leading edge in innovation while shifting production to cheaper locations offshore. Household incomes, meanwhile, peaked more than a decade ago, and a growing share of workers are having difficulty making ends meet with part-time, contract work. (More Japan stories.)