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Japan government admits recession as investment declines

JAPAN’S economy officially slid into recession yesterday as business investment declined following a VAT rise.

The world’s third-largest economy contracted at a 1.6 per cent pace in the July-September quarter, the government admitted yesterday, confounding predictions that it would grow after a big drop in the previous quarter.

An economy is generally considered to be in recession when it fails to grow for two consecutive quarters.

And weakness could drag down growth elsewhere if its companies buy fewer imports such as machinery and electronics.

But Japan’s gross domestic product figures showed across-the-board weakness in demand among consumers and manufacturers.

VAT was raised in April to 8 per cent from 5 per cent and spending has languished since.

The impact of the tax was much more severe than expected and housing investment has plunged 24 per cent from a year ago.

Prime Minister Shinzo Abe is expected to announce today that he will delay a second tax rise planned for next October.

That would relieve pressure on the economy, but slow progress on efforts to rein in government debt.

Household incomes peaked more than a decade ago and a growing section of workers is having difficulty making ends meet with part-time work.

Wage increases — mostly limited to workers in big-name companies — have lagged behind inflation.

Companies have failed to pass windfall gains from higher share prices and surging profits on to their workers in the form of higher wages.

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