Japan’s Q2 GDP growth slows to 1.1% as Iran war weighs on investment, consumer spending

Japan’s economy grew slower than expected in the second quarter, as the fallout from the West Asia conflict weighed on business investment and left households reluctant to spend, government data showed on Monday August 17.Gross domestic product expanded at an annualised rate of 1.1% in the three months to June, the Cabinet Office reported, well short of the 2% growth economists had forecast and down from a revised 1.9% pace in the previous quarter.Also Read: Asian stocks trade mixed; Nikkei slips as Japan’s Q2 growth misses estimatesOn a quarterly basis, output rose 0.3%, missing the 0.5% estimate, though the reading still extended Japan’s run of expansion to a third straight quarter.Capital spending proved the biggest drag, contracting 1.2% during the quarter against forecasts for a 0.4% rise, and steeper than the previous period’s 1% fall. Private consumption, which accounts for more than half of economic output, stagnated against expectations of a 0.5% increase as shoppers grappled with the rising cost of living.Reuters reported that this was the first full quarter to reflect the impact of the Iran war, which has driven up energy costs for businesses and households alike. The conflict has disrupted supply chains and pushed up prices for fuel and petroleum-based products, complicating the Bank of Japan’s efforts to communicate the timing of its next rate rise.Exports however, offered a rare bright spot, with net external demand adding 0.5% to growth on the back of strong US demand for Japanese hybrid vehicles and continued global investment in artificial intelligence, which boosted shipments of semiconductor equipment as a weaker yen also aided shipments.Also Read: Goldman Sachs picks China stocks poised to benefit from a new wave of AI-related hardware exportsThe soft consumption figures could pose a fresh challenge for Prime Minister Sanae Takaichi, whose approval ratings have slipped roughly six months after a landslide election win, as voters contend with persistently high prices for everyday goods. Takaichi has already introduced subsidies to cap utility bills and plans to cut the sales tax on food to 1% for two years from April.Despite the weaker headline figures, traders were pricing in an 80% chance that the Bank of Japan would raise its benchmark rate at its next policy meeting on September 18, according to swaps market data cited by Bloomberg, with the central bank said to be weighing a faster pace of hikes than its usual twice a year system.(Edited by : Gautam Krishna)

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