Japan’s economy bounced back at a slower pace than expected in the second quarter, with uncertainty remaining over whether consumption will grow enough to bolster the country’s fragile recovery.
Recovery in Japan, like in many other countries, has been set by Russia’s invasion of Ukraine and the resulting prices surges for commodities, despite rising consumption propping up growth in April-June.
“Consumption and capital expenditure will continue to drive growth in July-September. But momentum may not be that strong as rising inflation is cooling household spending,” said Atsushi Takeda, chief economist at Itochu Economic Research Institute.
“While domestic demand may continue to expand, falling exports could put a brake on Japan’s recovery.”
The world’s third-largest economy has additionally had to deal with a resurgence in cases of Covid-19, piling on additional pressure not seen by other major economies.
The Japanese economy expanded an annualized 2.2% in April-June, government data showed, the third straight quarter showing an increase but falling short of market forecasts of a 2.5% gain.
It followed a revised 0.1% rise in GDP in January-March, with the rising number of Covid infections hurting spending.
The growth was mainly driven by a 1.1% increase in private consumption, with demand for restaurants and hotels recovering as pandemic-related restrictions were lifted.
Capital expenditure, another key driver of April-June growth, was up 1.4% from the previous quarter, exceeding market forecasts of a 0.9% expansion.
Plenty of doubt remains though, with the rise in second quarter consumption lower than market forecasts of a 1.3% increase and recent price rises likely to impact household spending.