Japan just ahead of China as No. 2 economy in 2009

TOKYO: Japan retained its title as the world's number two economy in 2009, ahead of China, extending a recovery from a brutal recession with a robust fourth-quarter performance, data showed Monday.

But China, which grew a blistering 8.7 percent last year, came close to unseating its neighbour from the position it has held for more than 40 years.

Japan's economy grew 1.1 percent in October-December from the previous quarter, for an annualised pace of 4.6 percent, the government reported.

For the whole of 2009, Japan's gross domestic product (GDP) shrank 5.0 percent as exports and factory output collapsed during the global economic downturn, the data showed.

Despite the severe contraction, Japan stayed just ahead of China as the world's second-largest economy.

Japan posted nominal GDP of about 5.08 trillion dollars last year, based on the average dollar-yen exchange rate for 2009, the data showed.

China reported last month nominal GDP of about 4.9 trillion dollars for 2009.

But with China expected to enjoy another year of strong growth in 2010, Japan risks ending this year in third place worldwide as it struggles to cope with renewed deflation and a shrinking population, analysts said.

"China's population is 10 times larger than that of Japan. It's quite natural for China to overtake Japan in the face of rapid globalisation," said Toru Shimano, economist at Okasan Securities.

In terms of per capita GDP, China -- with a population of more than 1.3 billion people -- trails far behind Japan, with about 128 million.

China returned to double-digit growth in the fourth quarter of 2009 with a red-hot expansion of 10.7 percent.

Without China's boom, Japan's economy would be even more sluggish given that the two are major trading partners, analysts said.

Japan's economy staged a stunning recovery from the ashes of World War II and in the 1980s it was widely predicted to outstrip the United States.

But it suffered a decade of stagnation after an asset price bubble burst in the early 1990s.

The country plunged back into recession in 2008 as its exports collapsed due to a severe global downturn.

It returned to growth in the second quarter of 2009, exiting a year-long downturn. But the recovery remains fragile with falling consumer prices, high public debt and weak domestic demand all major concerns for policymakers.

China meanwhile has achieved remarkable growth since opening up its economy 30 years ago, growing at an average of more than nine percent each year in the three decades since 1978 -- three times the world average.

Growth stalled in the second half of 2008 as the global crisis took hold, but rebounded in the latter half of last year thanks in large part to a massive government stimulus package.

Comparisons between the two countries are complicated by exchange rate fluctuations. If the yen weakens further, that could hasten China's ascent to world's number two behind the United States.