Japan's economy grows at 4.6% pace

Japan is still the world's second-biggest economy, as fourth-quarter growth beat expectations and kept the country just ahead of a surging China.

Real gross domestic product grew at an annual pace of 4.6 per cent in the October-December period, the government said Monday. The average forecast of 15 economists polled by The Associated Press was annualized growth of 3.4 per cent.

The results indicate that Japan continues to benefit from government stimulus measures around the world, which have bolstered global trade and persuaded Japanese households to boost spending.

GDP, or the total value of the nation's goods and services, has climbed for three straight quarters. The annualized figure corresponds to quarterly growth of 1.1 per cent. Japan posted zero growth in the July-September quarter.

'Deflationary tendencies remain stubborn' Analyst Tetsufumi Yamakawa

Japan's nominal GDP for the 2009 calendar year came to about $5.1 trillion. China said last month its domestic output totalled $4.9 trillion.

Government officials said they were encouraged by the latest numbers, particularly since it was the first time in seven quarters for domestic demand to push GDP higher. Consumer spending, which accounts for about 60 per cent of the economy, rose 0.7 per cent from the previous quarter as shoppers took advantage of incentives on cars and home appliances.

Companies are also gaining confidence and starting to invest in factories and equipment.

Japan may now be strong enough to avoid falling back into recession, said cabinet official Keisuke Tsumura, according to Kyodo News agency.

Analysts agreed but predicted that consumer demand will decelerate, dragging growth down in the months ahead and putting pressure on Prime Minister Yukio Hatoyama to draw up more stimulus measures.

"Policy benefits will fade in subsequent quarters and deflationary tendencies remain stubborn," said Tetsufumi Yamakawa, chief Japan economist at Goldman Sachs.

Corporate capital spending climbed 1 per cent in the first expansion since January-March 2008. Public investment fell 1.6 per cent, while exports jumped 5 per cent.

China outpaced

The fourth quarter figures cap a miserable economic year overall that sent Japan to its steepest recession since World War II. GDP fell a record 5 per cent in 2009, the Cabinet Office said in its report.

Japan managed to hold on to its spot as the world's No. 2 economy, though analysts expect a quickly growing China to overtake it sometime this year.

But it is precisely the strength of China and other emerging markets in Asia that has lifted Japan from its downturn, helping to offset domestic risks such as deflation and falling wages.

Exports in December rose for the first time since the collapse of Lehman Brothers in late 2008, powering industrial production up 2.2 per cent from the previous month.

Other major economies also face uncertainty ahead.

The U.S. economy expanded at an annual rate of 5.7 per cent in the fourth quarter, but many analysts predict a slowdown this quarter as double-digit unemployment chills consumer spending.

The 16 countries that use the euro barely grew in the fourth quarter, as a modest recovery stalled amid turmoil in financially troubled members such as Greece and a flat performance from Germany, the biggest euro economy.