TOKYO–Japan’s economy contracted more than expected in the fourth quarter of last year, slumping 2.3 percent in annualized terms as demand for exports declined sharply.

On a non-annualized basis, gross domestic product shrank 0.6 percent in the October to December period, Japan’s Cabinet Office said Monday.

 

“This comes against a backdrop of flooding in Thailand and overseas economic slowing, as well as the disappearance of post-quake normalization of production. Although the decline was in keeping with the direction of the consensus forecast…the severity was much worse,” Nomura bank economist Takahide Kiuchi wrote in a report.

Last month, Japan registered its first full-year trade deficit since 1980, fueling concern about the state of the world’s third-biggest economy and setting the stage for a decline in fourth-quarter GDP.

 

Exports in the fourth quarter declined 3.1 percent or 11.9 percent on an annualized basis.

 

Still, Kiuchi stated that the bank expects Japan’s real GDP growth to be strong in the first quarter of this year, rapidly making up for the drop in the fourth quarter. The economist cited a series of factors behind this reasoning including the “easing of the impact” of the flooding in Thailand, increased production at automakers and stability in the U.S. and other economies.

“Considering that various economic indicators announced toward the end of 2011 and early in 2012 already indicate economic firming, we think the contraction in Q4 GDP announced today is unlikely to lead directly to any additional monetary easing of fiscal stimulus,” Kiuchi wrote.

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