Japan’s economy grows slower than expected in April-June

Japan's economy expanded at a slower rate than anticipated during the April-June quarter, according to official data released on Monday. The annualized growth rate for the period amounted to 1.1%, which fell short of market forecasts that predicted a 2.0% rise. This growth figure marked the third consecutive quarter of expansion, with the previous quarter's growth being revised upward to 1.9%, translating to a 0.3% increase quarter-over-quarter, in line with the median market estimate.

Private consumption, which constitutes over half of Japan's economic output, remained stagnant in the second quarter, falling short of expectations for a 0.5% increase. Supply disruptions stemming from geopolitical tensions in the Middle East and rising costs for raw materials contributed to the softening demand. Capital spending, a crucial driver of private consumption, decreased by 1.2% in the second quarter, below the anticipated 0.4% growth.

However, net external demand, encompassing exports minus imports, bolstered growth by 0.5 percentage point.

Exports continued to perform strongly, driven by robust demand for Japanese hybrid vehicles in the United States and sustained global investment in artificial intelligence, particularly in semiconductor-related equipment and components. Despite these factors, analysts warned that higher import costs and escalating upstream price pressures could eventually impact consumers, potentially slowing private consumption in the July-September quarter.

A recent survey conducted by the Japan Center for Economic Research indicated that 37 economists expected annualized GDP growth to decelerate to an average of 0.05% during this period.