By Kantaro Komiya
TOKYO Japan's economy likely grew in January-March at the fastest pace in three quarters, as spending in the services sector offset soft business activity, a Reuters poll showed.
Japan has so far been spared major impact from deteriorating global economic conditions thanks in part to the services sector enjoying a catch-up recovery following the country's delayed reopening from the COVID-19 pandemic, and as the central bank maintains an ultra-loose monetary policy.
The world's third-largest economy likely expanded by an annualised 0.7% in the first three months of 2023, showed the median of 17 economist estimates. Such a growth rate would be the fastest since the 4.7% of April-June 2022 and would follow expansion of just 0.1% in October-December.
"While accelerating inflation and a slowing global economy have brought downward pressure, a national travel subsidy and eased border control (for foreign visitors) helped drive up services demand," said senior economist Saisuke Sakai at Mizuho Research and Technologies.
Private consumption, which makes up the majority of Japan's gross domestic product (GDP), likely grew 0.4% in January-March, versus 0.3% in the previous quarter, said economists polled by Reuters. Spending on goods has stalled due to a four-decade-high inflation rate, but a flock of tourists both domestic and international supported overall consumption growth.
By contrast, capital expenditure likely contracted for a second month, by 0.4%, the poll showed. Depressed external demand also likely wiped 0.2 percentage point from overall GDP growth. A COVID-19 surge in China earlier this year and global monetary tightening have slashed overseas demand for Japanese products, making manufacturers hesitant to ramp up investment, analysts said.
Looking ahead, though services spending is set to further improve, slowing overseas growth will curb Japan's recovery potential, said Mizuho's Sakai, adding financial turmoil around Western banks poses further downside risk.
The government will release preliminary January-March GDP data at 8:50 a.m. on May 17 (2350 GMT, May 16).
(Reporting by Kantaro Komiya; Editing by Christopher Cushing)
