After two straight quarters of growth this year, the Japanese economy slipped into a contraction in the third quarter according to a new release of government data Wednesday.

The world’s third-largest economy saw its gross domestic product (GDP) in the third quarter contract an annualized 2.1%, in a more precipitous drop than the 0.6% decline which had been the median market projection. The decline came on the heels of a 4.5% expansion in the second quarter.

Takeshi Minami, chief economist at Norinchukin Research Institute, “Given the absence of a growth engine, it wouldn’t surprise me if the Japanese economy contracted again in the current quarter. The risk of Japan falling into recession cannot be ruled out.”

He added, “The weak growth and the specter of slowing inflation could delay the Bank of Japan’s exit from negative interest rates.”

The contraction has been attributed to persistently high inflation which has reduced household consumption, and mixed with weakened external demand from China and overseas, all of which depressed manufacturing orders.

Over the third quarter, consumption was unchanged, following a 0.9% decline in the second quarter. It underperformed a median estimate economists had produced of 0.2% growth, according to the data.

Stefan Angrick, senior economist at Moody’s Analytics said, “The disappointing third-quarter reading serves as a sobering reminder that the country is not yet out of the woods.”

Meanwhile, real wages, adjusted for inflation, fell by 2.4% year on year in September, for the 18th consecutive month of declines in consumer purchasing power.