Japan’s GDP Contracts, Surpassed by China in 2010

February 14, 2011

By Keiko Ujikane -Bloomberg News

Japan’s gross domestic product fell less than estimated in the fourth quarter in a pullback that may prove temporary as overseas demand revives production after the nation fell behindChina as the world’s second-largest economy.

The annualized 1.1 percent drop in GDP in the three months through December was driven by a slowing in exports and fading of government stimulus programs, Cabinet Office figures showed today in Tokyo. The median forecast of 26 economists surveyed by Bloomberg News was for a 2 percent drop.

Japan’s stocks rallied amid confidence the global economic recovery will strengthen as oil prices retreat and international political tensions subside with the resignation of Egyptian President Hosni Mubarak. The rebound is set to benefit Japanese exporters, with Toyota Motor Corp. and Komatsu Ltd. this year raising profit forecasts because of increasing sales abroad.

“This was just a temporary contraction and growth may accelerate more than investors anticipate this quarter and next,” said Kyohei Morita, chief economist at Barclays Capital in Tokyo, who forecast a 1.3 percent decline. “The export decline was smaller than expected and shipments will keep expanding as long as Asia’s economies continue to boom.”

The Nikkei 225 Stock Average has risen 4.5 percent this year, and advanced 0.8 percent as of 10:51 a.m. in Tokyo today. Japan’s benchmark 10-year government bond yields have also climbed since the start of 2010, reaching a 10-month high of 1.35 percent last week. They slipped today to 1.30 percent. Japan’s currency traded at 83.35 per dollar. The yen reached a 15-year high of 80.22 on Nov. 1.

Trade Impact

Net exports, or shipments less imports, subtracted 0.1 percentage point from GDP, beating economists’ estimates of a 0.2 point drop. Overseas shipments declined 0.7 percent, also better than forecasts for a 1.6 percent decline. Imports dropped 0.1 percent compared with a forecast for a 0.9 percent decline.

GDP will expand 0.6 percent in the first quarter and accelerate to a 1.9 percent pace by the final three months of 2011, according to the median estimates of 14 economists surveyed by Bloomberg News before today’s report.

Private consumption dragged down GDP after the government ended a subsidy program to buy fuel-efficient cars in September and reduced incentives to purchase electronic home appliances in December, a program that will end in March.

“This was a temporary pullback from the stimulus boosts in the third quarter, so we don’t need to be too pessimistic about the economic outlook,” said Susumu Kato, chief economist for Japan in Tokyo at Credit Agricole CIB and CLSA. “The economy will likely gain traction toward the end of this year.”

Corporate Forecast

Toyota Motor, the world’s largest carmaker, last week raised its full-year profit forecast by 40 percent as sales in Asia and other emerging markets exceeded its estimates. Komatsu, the world’s second-largest maker of construction equipment, last month also raised its earnings forecast after increasing demand in Asia helped third-quarter profit more than triple.

To read more, visit: http://www.bloomberg.com/news/2011-02-14/japan-s-economy-shrank-at-1-1-annual-pace-gdp-surpassed-by-china-in-2010.html

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