Japan's economy expanded at the fastest pace in two quarters in the final three months of 2009 as an export recovery spurred capital spending, but analysts say growth will slow down on cuts in public works spending and as consumption tapers off.
Economists say there is little chance Japan will fall back into recession as an expected acceleration in exports and government payouts to households with children in the second half of this year should underpin growth.
But the government is unlikely to take much comfort in the 1.1% quarterly GDP rise because few economists expect growth to increase rapidly as an ageing population, falling wages and a large gap between supply and demand push down prices.
The fourth quarter growth was the fastest since a 1.3% expansion in April-June 2009. Revised data showed Japan's economy ground to a halt in July-September.
The increase in the fourth quarter was also bigger than average forecasts for a 0.9% rise, and translated into an annualised rise of 4.6%. This also beat a 3.7% increase forecast.
In contrast, the US economy grew at an annualised clip of 5.7% in the same quarter, while the euro zone economy expanded 0.1% on the quarter.
Japan's expansion was led by domestic demand, which contributed 0.6 percentage points to growth. This was the first positive contribution in seven quarters as a recovery in exports and subsidies for energy-efficient goods fueled domestic capital expenditure.
Corporate investment rose 1%, the first gain since January-March 2008 but less than a median estimate for a 1.5% gain.
Private consumption gained 0.7%, slightly faster than a 0.6% rise in the previous quarter and more than double the average estimate for a 0.3% gain as government subsidies on cars and electronics that consume less energy lured shoppers.
Economists say private consumption could slow in the first half of this year as salaries and bonuses are not likely to start rising until the second half of the year.
The data also showed that public investment fell 1.6% in the fourth quarter, after falling by the same amount in the third quarter, as the government trims public works spending.
The Bank of Japan concludes a two-day monetary policy meeting on February 18, where investors are focusing on whether the central bank will extend a three-month fixed rate funding operation it first offered in December.
