Economy expanding before tensions in the Middle East and rising costs
– TOKYO, 19 MAY – The Japanese economy recorded growth for the second consecutive quarter in the first three months of the year, in a phase preceding the worsening of tensions in the Middle East and the consequent rise in energy prices on international markets. Between January and March, GDP growth was 0.5%, compared to a consensus of +0.4%, while on an analyzed basis the expansion was 2.1%, after an expansion of 0.8% recorded in the fourth quarter, and higher than expectations of +1.7%.
The data released by the government shows a recovering economy before the energy shock triggered by the conflict in the Middle East complicated the picture. In the reference period, private consumption – which contributes to over half of the GDP, rose by 0.3% against forecasts of 0.2%, while capital investments also grew by 0.3%, beating estimates.
Iran’s closure of the Strait of Hormuz – in response to the war unleashed by the United States and Israel at the end of February – has caused a surge in oil prices, and continues to fuel fears of serious disruptions to global energy supplies.
Japan is particularly exposed to the backlash, given its high dependence on hydrocarbon imports from the Middle East, while rising energy costs significantly impact inflation, weighing on company margins and the economy as a whole. In this context, the Bank of Japan (Boj) has multiplied its signals in the direction of a more restrictive monetary policy, leading the markets to discount a rise in interest rates with a high probability as early as June. However, analysts expect growth to slow in the coming quarters as the fallout from the Middle East conflict intensifies.
