By Leika Kihara
TOKYO, May 19 (Reuters) – Japan’s economy grew an annualised 2.1% in the first quarter, data showed on Tuesday, a sign it was on a solid recovery path before the energy shock caused by the Middle East conflict muddled the outlook.
The increase in Japan’s real gross domestic product (GDP) was bigger than the median market forecast for a 1.7% gain and followed a revised 0.8% rise in the previous October-December quarter.
On a quarter-to-quarter basis, the economy grew 0.5% compared with the median market forecast for a 0.4% gain.
Analysts expect growth to slow in the coming quarters as the fallout from the Middle East conflict, which has caused an unprecedented disruption to global energy supplies, intensifies.
Private consumption, which accounts for more than half of Japan’s GDP, rose 0.3%, compared with market forecasts for a 0.2% gain, the government data showed.
Net external demand, or exports minus imports, added 0.3 percentage point to growth. Analysts polled by Reuters had projected a 0.2 percentage point contribution.
Capital expenditure grew 0.3% in January-March compared with market forecasts for a 0.2% gain, the data showed.
Iran effectively shut the Strait of Hormuz in response to U.S.-Israeli attacks, which began on February 28, sending oil prices soaring and stoking fears of severe supply disruptions.
Japan is particularly vulnerable to the energy shock due to its heavy reliance on oil imports from the Middle East, with surging fuel costs driving up inflation, while weighing on corporate profits and the broader economy.
The Bank of Japan has dropped a slew of hawkish signals that led markets to price in a strong chance of an interest-rate hike in June.
(Reporting by Leika Kihara; Editing by Sam Holmes)
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