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Japan stays ahead of China - for now

By Kevin Voigt, CNN
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Japan exceeds GDP expectations
STORY HIGHLIGHTS
  • Japan's economy grew by 4.6 percent last quarter, beating expectations
  • Helps the nation keep the mantle as the world's second largest economy
  • China's economy is widely expected to surpass Japan this year
RELATED TOPICS
  • Japan
  • China
  • Economic Issues

(CNN) -- Japan's economy grew by 4.6 percent last quarter on an annualized basis, beating expectations and helping the nation keep the mantle as the world's second-largest economy.

China's economy is widely expected to overtake Japan sometime this year. Japan's 2009 GDP was $5.27 trillion, according to figures released by the government on Monday, compared to the $4.9 trillion Chinese economy last year.

Japan has been the world's second-largest economy since 1968, when it passed the economy of the former West Germany.

"Many people expected Japan to dropped to third sometime in 2009," said Masamichi Adachi, senior economist for JP Morgan in Tokyo.

Two factors led to Japan's better than expected financial results -- growth in export demand -- especially from China and the rest of Asia -- as well as stronger government consumption driven by stimulus funding, Adachi said.

"That makes the numbers not as encouraging as the headlines suggest, because it's not driven by increased private consumption," Adachi said.

Still, the increase trade figures was encouraging for Japan, whose economy is largely driven by export sales of durable goods such as cars made by Toyota and Honda, and electronics goods produced by Sony and Panasonic.

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The Japanese economy is recovering from the greatest downturn since World War II, as the financial crisis both decreased global demand of Japanese products and increased the value of the yen, which hurt overseas profits.

Even as China is poised to eclipse Japan as the world's second-largest economy, the growing demand from China has been a lifeline for the Japanese economy.

"Everyone (in Japan) knows that China will soon overtake us; it's a country with 10-times the population as Japan and a growth rate of about 10 percent," Adachi said. "(Japan's economic growth) is just flat, sluggish, and has been that way for the last two decades."

The United States remains the world's largest economy, with a value of about $14 trillion.