The expected normalising of Japan GDP growth occurred in the fourth quarter of 2010. GDP contracted 0.3% in the quarter (annualised 1.1%). Weakness was centred in consumption rreflecting the end of subsidies to buy fuel efficient cars in the September quarter. A further incentive programme to boost purchases of electronic home appliances was scaled back in December and will end in March.
From an annual rate of growth of 4.9% in the year to September, growth has dropped back to 2.2% for the year to December. We expect growth to slow further to around 1.5% by mid-year, in line with official Government forecasts.
Further out, activity is expected to recover again but only modestly so. Robust global growth will be good for exports and as the labour market begins to recover into the second half of 2011, consumption should also pick-up. However, we still only see 2011 growth of 2%.