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 Monday, 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.

This is not just bad news for Japan as it deepens uncertainty about China, where growth is slowing, and for the 18-country eurozone, which saw only 0.2% in the same quarter. The slowdown could drag on growth in Asia if Japanese companies hold back on foreign investment and manufacturers and consumers buy fewer imports such as mechanical parts, raw materials and food.