Japan's growth hurt by row with China: World Bank

WASHINGTON (REUTERS) - Japan's economy contracted in the second half of 2012 and is on track for lacklustre growth of 0.8 per cent this year, hurt in part by its bitter territorial row with China, the World Bank said in a report on Tuesday.

Relations between China and Japan, the world's biggest economies after the United States, have deteriorated sharply since September, when the Japanese government purchased islands in the East China Sea that China claims.

The value of Japanese exports to China fell by 17 per cent between June and November of last year, contributing to a 3.5 per cent annualised drop in Japan's growth in the third quarter.

The World Bank said the end of government tax incentives to purchase fuel-efficient automobiles also hurt the economy, as well as the fading boost to growth from reconstruction spending in the aftermath of the 2011 earthquake and nuclear disaster.