Japan Stays No2 World Economy in 2009

On 16 February, USA Today reported that Japan narrowly retained its lead over China in 2009 as the world's second-largest economy behind the U.S., buoyed by recovering exports and rising consumer spending.

Data released Monday by Japan's Cabinet Office show the country's inflation-adjusted gross domestic product grew at 1.1% in the fourth quarter and 4.6% on an annualized basis.

On a nominal basis, before adjusting for inflation, Japan's GDP last year totaled $5.09 trillion compared with China's $4.91 trillion.

In the latest quarter, Japan's exports rose 5% compared with the previous quarter, driven by recovering demand from neighboring Asian nations. Consumer spending, which makes up more than half of the Japanese economy, has also climbed for three consecutive quarters, helping lift the economy out of a severe recession. Government incentives for purchases of cars and electronics fueled consumption, analysts say.

But the recent improvement wasn't enough to reverse the economy's dismal 2009 results: Japan's inflation-adjusted GDP for the full year dropped a record 5%.

Going forward, "deflationary pressures are expanding while the economy is recovering," says Takahide Kiuchi, chief economist for Nomura Securities in Tokyo. Deflation, a period of sustained, declining consumer prices, drags down corporate profits, affecting employers' ability and willingness to hire workers and raise their pay.

Experts also warn that Japan's ballooning debt could undermine the country's growth. In late January, ratings agency Standard & Poor's revised downward the outlook for Japan's long-term credit rating to negative, due to rising "government debt, persistent deflation and a prospect of continued sluggish economic growth."

Economists believe it's only a matter of time before China overtakes Japan as the second-largest economy in the world.

"In 2010, Japan may fall to number three behind China," says Kiuchi, who expects Japan's economy to grow less than 1% in 2010 compared with an estimated 10.5% growth in China. "There's a huge gap between Japan and China."

In 2009, China posted strong GDP growth of 8.7% while other nations were eking out much smaller gains. China also overtook Germany last year as the world's largest exporter and the U.S. as the largest auto market in the world.

http://www.usatoday.com/money/world/2010-02-15-japan-gdp-economy_N.htm?csp=34