Japan's economy grew by 1.7 per cent in the last quarter of 2003, the best performance of any major industrialised nation, raising hopes of an end to the country's ten-year downturn.

The growth figure, which equated to 7.0 per cent on an annual basis, was Japan's best for 13 years and was welcomed as "awesome" by Fukushiro Nukaga, the policy chief of Japan's ruling party.

Analysts had forecast a rise of 1.2 per cent.

Heizo Takenaka, the Economic and Fiscal Policy Minister and a major architect of Japan's revival drive, said: ""I had expected that growth would be above private

economists' expectations, but it exceeded even that.

"The economy is recovering steadily, led by demand from the private sector."

The data, which followed statistics showing a fall in Japan's unemployment rate to 4.9 per cent December, raised hopes of a recovery in the world's second-largest economy after more than a decade of stagnation blamed on a crippled banking sector, a lack of political willingness to embrace reforms, and uncertainties which have undermined consumer demand.

However, the country continues to be beset by falling prices, a factor which exaggerates economic growth data. At constant prices, GDP grew by 0.7 per cent in the last three months of 2003.

The rise in the headline data was boosted by a 4.2 per cent rise in exports with private sector investment surging by 5.1 per cent. Private consumption remained weak, rising by 0.8 per cent.

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