(Bloomberg) — Japan’s recovery held up better than expected last quarter, with the economy again clocking double-digit growth, as exports kept climbing, businesses invested and government stimulus fueled consumer spending despite a winter surge of the coronavirus.Gross domestic product grew an annualized 12.7% from the prior quarter in the three months through December, the Cabinet Office reported Monday. The result was better than 22 of 24 forecasts from economists in a survey that had a median projection for a 10.1% expansion.The fourth-quarter expansion helped the economy get through the pandemic year with a 4.8 contraction, better than forecast by economists and a smaller hit than the 5.7% drop in 2009 following the global financial crisis.While the virus is seen pushing the economy back into contraction this quarter, the strong performance at the end of 2020 suggests the recovery could return to a relatively solid footing once the country ends a state of emergency that now covers Tokyo and Japan’s other big cities.“It looks like business spending is finally being drawn out as a result of the exports recovery,” said economist Hiroaki Muto at Sumitomo Life Insurance Co. “The first quarter will decline again, but we’re on a recovery trend.”Key InsightsLast quarter’s growth was driven by improved trade especially with China, the strongest expansion in business investment in more than five years and a rise in household spending helped by government subsidies for travel and eating out.How long the state of emergency lasts is a key factor for the outlook. Falling case numbers offers hope that restrictions might be lifted in some areas before March 7, the planned end-date, but with hospital capacity still stretched that decision has yet to come. Japan’s vaccine drive isn’t set to start until Wednesday.Prime Minister Yoshihide Suga in December unveiled a $700 billion stimulus package that should already have started feeding into the economy. So far, government loan guarantees and furlough subsidies have helped keep unemployment down to 2.9% and cut bankruptcies.The Bank of Japan will be looking closely at the consumer spending and capital investment figures to gauge the strength of domestic demand at the end of 2020. The BOJ in January trimmed its forecast for the economy this fiscal year, but boosted its projections for the following years, as it heads toward a policy review set for March.What Bloomberg’s Economist Says…“Looking ahead to 1Q 2021, we see GDP falling back into contraction again, hit by a fresh round of containment measures in the second state of emergency called in January. High-frequency data show business activity retreating in January and early February. But the economy could see a bounce in 2Q, assuming the virus is brought under control.”– Yuki Masujima, economistFor the full report, click here.Get MoreNon-annualized GDP rose 3% from the prior quarter, compared with a consensus estimate of 2.4%.Nominal GDP increased 2.5%. Economists forecast an expansion of 1.9%.Private consumption climbed 2.2% from the previous quarter, compared with a 2% increase forecast by economists.Business investment rose 4.5%. Analysts had predicted a 2.4% gain.Inventories subtracted 0.4 percentage points from GDP, compared with a 0.2 percentage point subtraction expected by economists.Net exports of goods and services contributed 1 percentage point to non-annualized GDP growth. Economists forecast a 0.9 percentage point boost.(Adds economist’s comment.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.