World's third biggest economy stumbles as Japan officially enters a recession

Japan's president looks set to scrap a sales tax increase and also call a snap election in an attempt to fix the issue.

14:45 17 November 2014

The world's third largest economy has entered a recession. Japan's gross domestic product fell by an annual rate of 1.6% from July to September. It follows a disastrous second quarter which was marked by a harsh 7.3% dive.

Economists had predicted a 2.1% increase for the third quarter which makes the recession all the more surprising. 

The news looks set to result in the Japanese Prime Minister Shinzo Abe delaying a planned 10% sales tax hike.

Credit Suisse analyst Hiromichi Shirakawa agreed in a note: "The second tax hike is likely to be postponed unless the data shows a high growth rate, something like an annualised rate of four to five per cent."

Abe is also predicted to call a snap election. Despite the financial troubles, Abe still commands strong approval ratings among his public.

Tokyo University politics professor Sadafumi Kawato told AP that "because it will take time for the Japanese economy to pick up in a sustainable way, general elections later on would risk his chance of being re-elected as the ruling party leader in September next year."

Japan's latest recession comes less than two years after it survived another one.