TOKYO (AFP) - Japans economy gathered pace in the first three months of the year but missed forecasts, data showed Thursday, illustrating that an accelerating export-driven recovery remains threatened by deflation. In a fourth straight quarter of expansion, gross domestic product grew by an annualised 4.9 percent in the January-March period and 1.2 percent compared to the previous quarter, the fastest pace since the second quarter of 2009. But the rate of growth was lower than forecast, as a Dow Jones Newswires poll of 11 economists had predicted 5.9 percent annualised growth in the period. A Nikkei poll of 26 companies put growth at 5.4 percent. While the expansion was applauded by Finance Minister Naoto Kan, who said it reflected a steady recovery, he warned that Japan remained mired in deflation and called on the Bank of Japan to do more to tackle falling consumer prices. Exports, particularly to emerging Asian markets such as China, are driving what the International Monetary Fund has called Japans tentative recovery from recession, encouraging companies to increase capital spending. Booming demand for new cars, high tech products and factory parts have combined with a stimulus-driven domestic picture, helping Japans biggest companies return to profit in the past fiscal year. The headline figure was slightly weaker than the market had expected but it is nonetheless high growth, noted Naoki Murakami, chief economist at Monex Securities. Illustrating how the health of corporate Japan is trickling through the wider economy, exports of goods and services were up 6.9 percent on-quarter while household and private consumption gained 0.3 percent. The data confirms the V-shaped recovery in exports for the past year has led to a recovery in domestic demand such as capital spending, said Murakami. However, the soaring welfare costs of a greying population and deflation continue to burden Japan , as falling consumer prices encourage consumers to defer purchases in the hope of further price drops. And after decades of heavy stimulus spending and declining tax revenue, Japan has a public debt mountain bigger than any other industrialised nation, expected to hit 200 percent of gross domestic product in the next year. The IMF on Wednesday said the need for early and credible fiscal adjustment has become critical in Japan as pressure builds on Prime Minister Yukio Hatoyamas government to act, with austerity measures likely to hit growth. Corporations are also nervously eyeing the eurozone debt crisis, which has left the safe-haven yen in demand against the euro, denting the outlook for Japanese exporters repatriating earnings. Japanese shares fell 1.54 percent to their lowest in more than three months Thursday on eurozone fears. Takeshi Minami, economist at Norinchukin Research Institute, said Japanese growth will likely slow in April-June. It will be difficult to expect exports to continue making this much of a contribution to the overall economy, he said. While the latest data shows Japan remained ahead of China as the worlds number two economy in the first quarter in terms of nominal GDP, it remains close to losing the position it has held for more than 40 years. With China expected to enjoy another year of strong growth in 2010, Japan risks ending this year in third place worldwide as it struggles to cope with deflation and a shrinking population, say analysts. Nevertheless, the economy grew 1.2 percent in the first three months compared with the fourth quarter of last year, which saw revised growth of 1.0pc, slightly higher than an earlier estimate of 0.9pc. And a revised figure for July-September showed growth of 0.1 percent compared to an earlier estimated decline. The overall 2009 figure was unchanged with a 5.2 percent contraction as exports plummeted during the global crisis.