Japan's economy grows more than expected on support from trade, capex

By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters) - Japan's economy expanded more than expected in the fourth quarter, extending its recovery from its worst postwar recession thanks to support from firm exports, consumption and capital expenditure.

However, the pace of recovery slowed from the blistering pace seen in the third quarter, underscoring the challenge policymakers face in keeping the economy afloat as new emergency measures to prevent the spread of COVID-19 hit demand.

The world's third-largest economy grew an annualised 12.7% in October-December, government data showed on Monday, marking the second straight quarter of increase and exceeding a median market forecast for a 9.5% gain.

It was a slowdown from a revised 22.7% surge in the previous quarter, when the economy got a lift from pent-up demand after a previous state of emergency was lifted in May.

For the full coronavirus -stricken year, Japan's economy contracted 4.8%, marking the first annual fall since 2009.

The growth translated into a quarter-on-quarter increase of 3.0%, the Cabinet Office data showed.

A global rebound in manufacturing activity gave exports a much-needed boost, making up for some of the weakness in domestic demand, the data showed.

External demand, or exports minus imports, added 1.0% point to fourth-quarter GDP growth, matching a median market forecast.

Private consumption, which makes up more than half of Japan's economy, rose 2.2% after a 5.1% increase in the previous quarter. That compared with market forecasts for a 1.8% gain.

Capital expenditure grew 4.5%, marking the first increase in three quarters, the data showed.

Japan's economy has gradually emerged from last year's initial state of emergency curbs thanks to a rebound in exports.

But the government's decision to roll out new restrictions from January has heightened the chance of another recession, clouding the outlook for a fragile recovery.

(Reporting by Leika Kihara and Tetsushi Kajimoto; Additional reporting by Kaori Kaneko; Editing by Chris Gallagher and Sam Holmes)

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