10:24 PM
By Tetsushi Kajimoto and Leika Kihara
TOKYO | Sun Feb 13, 2011 10:58pm EST
TOKYO (Reuters) - Japan's economy shrank slightly in the final quarter of 2010 but analysts expect a recovery this year as stronger exports to China and other parts of fast-growing Asia offset persistently weak domestic demand.
Gross domestic product (GDP) shrank 0.3 percent in October-December from the previous quarter, slightly less than a 0.5 percent fall expected by markets but still the first contraction in five quarters.
That translated into an annualized contraction of 1.1 percent, far worse than U.S. growth of 3.2 percent in the same quarter, although analysts blame the weakness mostly on a temporary hit to consumption after the September expiry of government incentives to buy low-emission cars.
"The data confirms that the economy entered a lull on a downturn in private consumption, but recent monthly economic indicators such as output and exports show it is unlikely that the lull will be prolonged," said Yoshiki Shinke, senior economist at Dai-ichi Life Research Institute.
"The economy will continue to depend on external demand for growth, as domestic demand is likely to be capped by subdued income growth and the anticipated negative impact from the expiry of subsidies for energy-efficient electrical appliances."
CHINA THE NEW NO.2
The latest GDP figures also confirmed that China overtook Japan as the world's second-largest economy in 2010 on a seasonally unadjusted, nominal dollar basis, at $5.8786 trillion against $5.4742 trillion.
Economics Minister Kaoru Yosano said Japan needed to make the most of China's growth to boost its own fortunes, as it increasingly relies on demand from its Asian neighbor.
"The fact that China's economy is booming is welcome news for Japan as a neighboring country," Yosano told reporters. "We want to deepen the amicable economic relationship between Japan and China."
Japan's shipments to mainland China accounted for 19.4 percent of its overall exports last year, making it the No.1 destination for Japanese goods, followed by the United States at about 15.4 percent.
While recent data showed exports and industrial output rose more than expected in December, a pick-up in the corporate sector is seen unlikely to spill over to personal consumption, which makes up about 60 percent of GDP.
Capital expenditure rose 0.9 percent from the previous quarter, slower than the 1.5 percent pace of gains in July-September.
Private consumption, on the other hand, fell 0.7 percent from the previous quarter after a 0.9 percent increase in July-September.
Analysts expect personal consumption to remain weak due to sluggish wages and the roll-back of government incentives for purchases of energy-efficient household electronics in December.
RISKS FROM OVERSEAS, CURRENCIES
Posts
