TOKYO - Japan's economy shrank an annualized real 0.4 percent in October-December for the third straight quarterly contraction on weak exports and business investment, the government said Thursday, adding to the view that the world's third-biggest economy is still struggling to come out of a recession.
The result was well below the average market forecast of 0.6 percent growth in a Kyodo News survey. However, it showed that the pace of decline slowed from the previous quarter, when the economy shrank 1.0 percent, indicating some signs of recovery down the road.
"Although the Japanese economy will remain weak for the time being, it is expected to gradually pick up through the Bank of Japan's monetary easing and policy effects of emergency economic measures," economic and fiscal policy minister Akira Amari said in a statement.
Japan's gross domestic product was dragged down mainly because exports of goods and services dropped 3.7 percent amid a global economic slowdown, the Cabinet Office said in a preliminary report.
In addition to Europe and the United States, exports to China decreased in the three-month period, hit by anti-Japan sentiment after a territorial dispute reignited between Asia's two largest economies in September.
Business spending fell an inflation-adjusted 2.6 percent, marking the fourth straight quarter of decline, due to weak business sentiment among Japanese automakers and other manufacturers, affected by sluggish exports.
Looking on the bright side, private consumption, the biggest component of Japan's GDP -- the total value of goods and services produced domestically -- rose 0.4 percent in the final quarter of 2012.
The government attributed this to an increase in household spending on winter clothes and food as well as digital products such as tablet computers.
But spending on durable goods declined, reflecting weak auto sales notably in October following the end of the government's subsidy program for purchases of environmentally friendly vehicles.
Housing investment grew 3.5 percent, boosted by continued demand in northeastern Japan in the wake of the March 2011 earthquake and tsunami disaster.
The fall in the October-December inflation-adjusted GDP corresponds to a 0.1 percent decline from the previous quarter against the average projection of 0.2 percent gain.
In nominal terms, or unadjusted for price change, the economy contracted 0.4 percent quarter-on-quarter, the preliminary report said.
Domestic demand boosted GDP by 0.1 percentage point while external demand, or net exports, trimmed it by 0.2 percentage point.
The GDP deflator, a wider price gauge than the consumer price index, fell 0.3 percent, suggesting the economy has remained under deflationary pressure.
Masaaki Kanno, chief economist at JPMorgan Securities Japan Co., said Japan's GDP is expected to return to positive territory in the first quarter of 2013, citing improving business sentiment amid the recent trend of the weaker yen, propelled by Prime Minister Shinzo Abe's push for the BOJ to carry out further monetary easing.
"This GDP decline has limited implications for the outlook," Kanno said.
In 2012, real GDP rose 1.9 percent from 2011 for the first growth in two years, helped by strong personal spending, according to the government.