(Bloomberg) -- Japan confirmed its economy grew by double-digits at the end of last year, according to revised data that continued to show strength even as this quarter’s virus emergency sets back the recovery for the time being.Gross domestic product grew an annualized 11.7% from the prior quarter in the three months through December, the Cabinet Office reported Tuesday.The figures were a touch weaker than a preliminary 12.7% largely due to a bigger drawing down of inventories that points to stronger demand in the quarter, even though it weighs on the overall GDP figure. Economists had forecast a revised growth rate of 12.6%.While the updated figures show the economy was keeping up its growth momentum at the end of the pandemic year, separate data showed household spending dropped by more than expected at the start of the renewed emergency in January as business hours were curtailed and shoppers stayed home to avoid infection.Key InsightsThe growth report largely bodes well for the country’s recovery prospects after emergency measures to contain the virus are fully lifted. “The slightly smaller GDP gain doesn’t change the fact that Japan’s economy bounced back robustly,” said Taro Saito, head of economic research at the NLI Research Institute, adding that the drop in inventories was positive news.Still, the economy is seen shrinking this quarter amid restrictions that have led to weeks of reduced hours at bars and restaurants in major cities. Prime Minister Yoshihide Suga last week extended the emergency through March 21 for the Tokyo region to better contain the virus after almost two months of improvement.January’s drop in household spending is one sign of the fallout from the emergency. Ongoing wage drops also suggest there’s a limit to how much consumption can improve even after restrictions end and Japan’s vaccine drive, which only started in mid-February, picks up pace.The fall in spending showed a contraction this quarter is inevitable, though over the longer term the overall picture is a gradual improvement back to pre-crisis levels, Saito said.The Bank of Japan is scheduled to wrap up a policy review next week to make its monetary easing sustainable over the long haul, given that inflation looks set to stay below the BOJ’s stable 2% target for a long time.What Bloomberg Economics Says...“Looking ahead to 1Q, we expect a sharp decline in GDP as a result of the latest state of emergency ... When it’s lifted, the economy could see another sharp pickup, propelled by pent-up demand and consumers with excess savings -- assuming the outbreak is brought under control in 1Q.”-- Yuki Masujima, economistFor the full report, click here.Get MoreOn a non-annualized basis GDP grew 2.8% from the previous quarter, compared with a 3% expansion forecast by analysts.Nominal GDP expanded 2.3%. Economists had expected 2.5%.Private consumption increased 2.2% from the prior quarter, in line with the preliminary figure and a forecast by economists.Business investment rose 4.3%. Analysts had predicted a 4% increase, compared with the preliminary result of 4.5% after finance ministry capital spending data released last week came in weaker than expected.Inventories subtracted 0.6 percentage point from GDP, compared with a 0.4 percentage point subtraction expected by economists.Net exports of goods and services contributed 1.1 percentage point to non-annualized GDP growth. Economists forecast a 1 percentage point support in line with the preliminary estimate.Household spending fell 6.1% in January from a year ago. Economists had forecast a 2.1% drop.Labor cash earnings fell 0.8% in January, compared with a 1.7% loss forecast by analysts. Adjusted for inflation, overall wages edged down 0.1%.(Adds economist comments)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.