© Reuters. FILE PHOTO: A woman looks at items at a shop in Tokyo, Japan, March 24, 2023. REUTERS/Androniki Christodoulou

By Tetsushi Kajimoto and Leika Kihara

TOKYO (Reuters) – Japan’s economy expanded an annualised 1.6% in the January-March period to mark the first increase in three quarters, data showed on Wednesday, as a post-COVID rebound in consumption offset global headwinds.

But mounting signs of a slowdown in U.S., European and Chinese growth clouded the outlook for the export-reliant economy, heightening uncertainty on how soon the central bank can phase out its massive stimulus programme.

The increase in gross domestic product (GDP) was much bigger than a median market forecast for a 0.7% gain, and followed a revised 0.1% fall in the final quarter of last year, government data showed.

Private consumption, which makes up more than half the economy, grew 0.6% in January-March from the previous quarter, as the country’s re-opening from the pandemic boosted service spending. That was faster than forecasts of a 0.4% increase.

Capital expenditure was up 0.9%, dashing expectations for a 0.4% fall, the data showed.

External demand, or net exports, shaved 0.3 of a percentage point off GDP, highlighting the strain on manufacturers from slowing overseas growth.

While a delayed recovery in spending from the removal of COVID-related curbs is underpinning growth, sluggish global demand and the hit to households from rising living costs cloud the outlook for a sustained recovery.

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