Japan's economy shrank an annualized real 1.1 percent in the fourth quarter of 2010, marking the first contraction in five quarters, the Cabinet Office said Monday.

The October-December period figure, measured by gross domestic product, means a 0.3 percent fall from the previous three-month period.

The figures beat forecasts of an annualized 2.2 percent contraction and 0.6 percent quarterly decline in a Kyodo News survey. Analysts said the downturn was a natural result of the slowdown in exports and weaker domestic consumer demand.

Japan's real GDP grew 3.9 percent in 2010, according to government statistics. A nominal GDP of 5.474 trillion U.S. dollars only secured a third spot for Japan in the world, behind the United States and China.

Japan's Economics Minister Kaoru Yosano said he welcomed China's advancement as the world's second-biggest economy.

Despite its quarterly GDP contraction, analysts believed signs of recovery are seen in Japan's economy. Its exports accelerated for a second month in a row in Dec. and picked up briskly in 2010 from a year earlier, thanks largely to the robust demand from China and other Asian economies.