Japan still world's second economy

February 15 2010 : Japan has held its title as the world's second-biggest economy after 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% in the October-December period, the government said.

The average forecast of 15 economists polled by The Associated Press was annual growth of 3.4%.

Japan's nominal GDP for the 2009 calendar year came to about 5.1 trillion US dollars (£3.25 trillion), topping China's domestic output of 4.9 trillion US dollars (£3.1 trillion).

On the surface, the results reflect how Japan has benefited from government stimulus measures at home and 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 now for three straight quarters and looks unlikely to retreat this year.

Consumer spending, which accounts for about 60% of the economy, rose 0.7% from the previous quarter as shoppers took advantage of incentives on cars and home appliances. More confident companies are also starting to invest in factories and equipment.

"There is some brightness breaking through the clouds," Finance Minister Naoto Kan told reporters, according to Kyodo News agency.

The outlook, however, is hardly sunny as Japan prepares to lose its number two spot in global economic pecking order after the US - a position it has held for more than four decades.

Analysts predict that consumer demand will almost certainly decelerate, hindering growth in the months ahead. Exacerbating woes is a viscous cycle of falling prices and wages, along with a shrinking population and tax base.

However, China's red-hot economy is expanding at a furious pace. Fourth quarter growth jumped to 10.7%, bringing overall 2009 growth to 8.7%.