Japan’s economy rebounds from COVID jolt, global slowdown dims outlook

By Leika Kihara and Tetsushi Kajimoto

TOKYO, August 15 (Reuters)Japan’s economy grew for the third consecutive quarter on the back of strong private consumption, April-June data showed on Monday, a sign that the country was finally mounting a very belated recovery from a COVID-induced slowdown.

But the outlook remains uncertain due to a resurgence in COVID-19 infections, slowing global growth, supply constraints and rising commodity prices that are driving up the cost of living for households.

Gross domestic product (GDP) in the world’s third-largest economy rose 2.2% at an annualized rate in the second quarter, after a revised increase of 0.1% in January-March, according to government data. It was below a median market forecast for a 2.5% increase.

Growth was largely driven by a 1.1% rise in private consumption, which accounts for more than half of Japan’s GDP, the data showed. The rise, however, was lower than market expectations for a 1.3% increase.

Capital spending rose 1.4%, more than the median market forecast for a 0.9% expansion, the data showed.

External demand neither added to nor detracted from GDP growth, against an expected contribution of 0.1 point.

Japan has lagged other major economies in fully recovering from the pandemic blow due to weak consumption, partly attributable to the drag on activity that lasted until March.

This has made the Bank of Japan an outlier in the phase of global monetary tightening sweeping across many economies amid soaring inflation.

Policymakers hope pent-up demand will support consumption until wages rise enough to offset the rising cost of living. But there is uncertainty over whether companies will raise wages amid heightened risks of slowing global demand, analysts said.

(Reporting by Leika Kihara and Tetsushi Kajimoto; Additional reporting by Kantaro Komiya Editing by Shri Navaratnam)

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