Japan and China are vying for the rank of the world's second biggest economy Japan's economy grew by a better-than-expected 1.1% in the final quarter of last year, according to official figures. This is the equivalent of an annualised increase of 4.6%. However, despite the growth in October to December, the economy contracted by 5% over the whole of 2009. China now rivals Japan for the rank of the world's second-biggest economy, and is on course to overtake Japan. China's economy expanded by 8.7% in 2009. "The Japanese population has become quite sober about themselves and relatively pessimistic about the country's outlook," said Takuji Okubo, chief economist at Societe Generale in Tokyo. Japan's return to growth has been led by exports, particularly to China, which is now its largest overseas market. Cautious consumers Consumer spending, which accounts for about 60% of the Japanese economy, rose 0.7% from the previous quarter as shoppers took advantage of government incentives on cars and home appliances. However, consumer spending remains weak in general. Corporate capital spending rose by 1% in the quarter, seeing the first expansion since the three months to March 2008. Public investment fell 1.6%, while exports jumped 5%. Last month, China said its economy expanded by 8.7% in 2009, exceeding even the government's own initial expectations. This led many analysts to believe that Japan's latest figures would confirm that China had overtaken it to become the world's second-biggest economy. However, China and Japan's figures are now so close, and the ways of measuring economic growth are so complex and variable, that their relative rankings are still within the margin of error. Both countries' figures are also based on preliminary data and subject to revision.



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