The contraction, equivalent to a 1.1 per cent decline on an annualised basis, was Japan’s first in more than a year and came after the expiry of a raft of government subsidies on consumer goods that had helped to inflate demand in the previous quarter.
Japan’s preliminary estimates of GDP are highly volatile, with government statisticians often issuing dramatic revisions as more detailed data becomes available.
The October-December period figure, measured by gross domestic product, means a 0.3 percent fall from the previous three-month period.
However, Monday’s data made clear that China has decisively surpassed Japan as the world’s second largest economy after the US in dollar terms.
Recent data showing that demand for the output of Japan’s powerful manufacturing sector is recovering have fuelled growing optimism among officials and analysts that the economy will return to growth in the current quarter.
Despite the fourth quarter contraction, Monday’s data suggested Japan’s economy grew a respectable 3.9 per cent in 2010.
However, output remains well below pre-financial crisis levels. GDP fell 1.2 per cent in 2008 and an exceedingly painful 6.3 per cent in 2009.
In the fourth quarter, private consumption was down 0.7 per cent, in part because of the expiry of state subsidies for buyers of environmentally friendly” automobiles and other economy-boosting government measures.
Exports fell 0.7 per cent, resulting in net trade making a negative contribution to growth in the quarter, after the yen rose to 15-year nominal highs against the dollar.