Economy
Japan’s solid Q1 growth faces hard test amid Iran war energy shock
Japan’s economy grew more than expected in the first quarter of the year, led by solid exports and consumption, data showed, although momentum is likely to face a severe test as the full force of the energy shock from the Iran war filters through businesses and consumers.
The data will be one of the key factors the Bank of Japan (BOJ) will scrutinize in determining whether the economy can withstand the energy crisis, and allow it to raise interest rates as soon as next month.
“Today’s data shows the economy was on a solid footing before the Iran war, which means it has some buffers to weather the energy shock,” said Yoshiki Shinke, senior executive economist at Dai-ichi Life Research Institute.
“The economy may contract in the second quarter, but if it’s just about prices rising overall, it can probably resume a recovery thereafter. If there’s huge supply disruptions, the damage to growth could be so severe that the BOJ may not have scope to raise interest rates in June,” he said.
Japan’s real gross domestic product (GDP) increased an annualized 2.1%, data showed on Tuesday, outstripping the median market forecast for a 1.7% gain and a revised 0.8% rise in the previous October-December quarter.
The second straight quarter of expansion in the world’s fourth-biggest economy was underpinned by solid exports with net external demand adding 0.3 percentage point to growth, the data showed.
Private consumption and capital expenditure both grew 0.3% from the previous quarter, suggesting that robust corporate profits and steady wage gains were supporting the recovery.
But 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.
“We think the Q1 GDP is already in the rear-view mirror and expect the economy to feel the strains from high energy costs ahead. Higher energy prices and elevated uncertainty will limit consumption and investment in the near term,” analysts at Oxford Economics wrote in a research note.
Markets largely shrugged off the GDP data, with attention instead focused on U.S. President Donald Trump’s decision to halt a planned strike on Iran, leaving Asian stocks directionless and bonds on firmer ground.
Safe-haven demand for the dollar pushed the yen down to 159 per dollar, keeping traders on alert for the chance of yen-buying intervention by authorities.
Tokyo is suspected to have spent roughly 10 trillion yen in the latest bout of intervention to shore up the embattled Japanese currency, as its sustained weakness fans inflationary pressure through costlier imports.
‘Difficult year’ ahead
U.S.-Israeli strikes on Iran in late February and Tehran’s effective closure of the Strait of Hormuz, which normally carries a fifth of global oil and gas, have sent prices soaring and raised fears of a major disruption to energy flows.
Japan’s heavy reliance on Middle Eastern oil leaves it acutely exposed. Rising fuel costs are stoking inflation, eroding household purchasing power and tightening corporate margins, a combination that heightens the risk of a severe economic downturn if disruptions persist.
The shift in the outlook is already rippling through policy expectations. The BOJ has dialled up hawkish signals that had prompted markets to price in a strong chance of an interest-rate hike in June.
The government, for its part, will compile an extra budget to cushion the economic blow from soaring fuel costs, a move that would strain Japan’s already worsening finances.
In a statement issued after the GDP data, Economy Minister Minoru Kiuchi urged vigilance over the drag from the Middle East war.
“The outlook for the coming quarters looks incredibly challenging,” with the conflict pushing up commodity prices and inflation keeping real wage growth slow, said Stefan Angrick, head of Japan and Frontier Markets Economics, Moody’s Analytics.
“Modest fiscal support for households, defence and strategic investment should keep the economy from derailing, but the growing list of headwinds points to a difficult year.”
Spain will add some 13.3 billion euros ($15.5 billion) in funding to its newly created sovereign wealth fund to extend the stimulus from expiring European Union funds, the government announced on Tuesday.
The injection and activation of the fund, approved by the cabinet at its weekly meeting, involves 10.5 billion euros in loans and 2.8 billion euros from non-repayable grants, all coming from Next Generation EU funds.
The government expects the mechanism, called “Spain Grows,” to mobilize around 120 billion euros in productive investment when coupled with private funding.
It will prioritize sectors with high transformative potential for the economy, such as the construction of affordable rental housing, green transition and technological innovation.
The unemployment rate in the U.K. has unexpectedly risen in the first quarter, as vacancies slumped to their lowest level in five years amid a sharp pullback in hiring across under-pressure retail and hospitality sectors, according to official figures on Tuesday.
The jobless rate rose to 5% in the three months to March, up from 4.9% in the three months to February, said the Office for National Statistics (ONS).
Most economists had expected the rate to remain unchanged.
The ONS estimated the number of workers on U.K. payrolls also slumped by 100,000 during April to 30.2 million, which is the largest fall since May 2020 at the start of the COVID-19 pandemic, although these figures are subject to revision.
It said vacancies dropped by 28,000 quarter-over-quarter to 705,000 in the three months to April, which is the lowest level since the same period in 2021.
Retail and hospitality firms saw some of the largest falls in payroll numbers and vacancies, with the ONS saying firms in the sectors were flagging “economic and geopolitical uncertainty” as reasons to halt hiring.
Regular earnings growth, meanwhile, also fell back further, to 3.4% in the first quarter, down from 3.6% in the three months to February and the lowest level since October 2020, only just outpacing Consumer Prices Index (CPI) inflation by 0.3%.
Liz McKeown, ONS director of economic statistics, said: “Latest figures suggest the labor market remains soft, with vacancies at their lowest level in five years and unemployment higher than a year ago.”
She added: “Lower-paying sectors such as hospitality and retail have seen some of the largest falls in vacancies and payroll numbers, both in recent months and over the last year.”
The figures follow recent warnings over rising unemployment as a result of the inflation shock caused by the Iran war and the impact on consumer spending and the wider economy.
The Bank of England (BoE) last month predicted that even in its most positive forecast, unemployment would hit 5.5% in 2027, with this increasing to 5.6% in a more extreme impact scenario.
Retail and hospitality firms are seen as being particularly exposed, having already been hit with soaring labour costs in recent years.
The ONS said retail vacancies were down 7,000 quarter on quarter in the three months to April while they were 11,000 lower for hospitality.
The number of payroll workers in the sectors were also sharply lower, with retail estimated to be down 76,000 year-on-year in April and hospitality seeing a 75,000 drop.
This is having a major impact on young workers, who traditionally find work in those sectors, with the ONS revealing the rate of unemployment among 16 to 24-year-olds jumped to 16.2% in the three months to March, marking the highest level since 2015.
Work and Pensions Secretary Pat McFadden stressed the latest figures also showed 416,000 more people in work than a year ago.
“While this is encouraging, we know the conflict in the Middle East is casting a shadow on the labor market,” he said.
Consumer confidence in Türkiye increased modestly in May, reaching its highest level in 14 months, according to a survey released Monday.
The consumer confidence index, jointly compiled by the Turkish Statistical Institute (TurkStat) and the Central Bank of the Republic of Türkiye (CBRT), rose 0.3% month-over-month to 85.8 in May.
The reading is up from 85.5 in April and marks the highest level since March 2025.
The index measuring households’ current financial situation fell 3.5% in May to 69.2, down from 71.8 in April.
In contrast, expectations for the next 12 months improved modestly. The household financial situation expectation index rose 0.5% to 87.9 from 87.5 in the previous month.
The greatest improvement among subcomponents was seen in broader economic expectations.
The general economic situation expectation index climbed 3.9% to 81.4, up from 78.3 in April.
Spending intentions for durable goods in the next 12 months remained broadly stable, inching up to 104.5 from 104.4.
The improvement in sentiment comes amid ongoing efforts by policymakers to stabilize inflation and macroeconomic expectations amid pricing pressures amid the fallout of the Iran war.
The conflict, which started in late February after the U.S. and Israel launched joint strikes on Iran, has effectively shut the key Strait of Hormuz, causing what is described as the biggest energy supply crisis ever.
The higher energy prices and transportation prices were among the main drivers behind an increase in Türkiye’s consumer inflation in April, when it reached 32.37%, compared to 30.9% in March.
Last week, CBRT raised its year-end inflation forecast to 26% from 16% and warned of risks linked to the Middle East conflict.
The central bank policymakers said there would be no compromise on their determination to bring down inflation and they will continue to use all available tools for disinflation.
The bank kept its key interest rate at 37% last month, holding steady for the second successive policy meeting due to war-related disruptions.
Despite the May improvement, the consumer confidence index remains below the 100 threshold, signaling that households remain cautious, particularly regarding income stability and purchasing power.
Commerzbank formally rejected UniCredit’s takeover offer on Monday, reinforcing its opposition to the Italian lender’s months-long attempt to acquire the German bank.
UniCredit has become Commerzbank’s largest shareholder and earlier this month made an unsolicited offer to buy its shares in a deal that values the bank at nearly 39 billion euros ($45.37 billion), below its market price.
Commerzbank’s supervisory and management boards “recommend that shareholders not accept UniCredit’s exchange offer,” the bank said in a summary of a 137-page analysis of the deal.
It said that the offer “does not reflect the fundamental value of Commerzbank” and that it was “vague and entails considerable risks”.
Commerzbank executives – along with Germany’s government and bank employees – have long criticized the tie-up attempt as hostile, recently calling UniCredit’s offer “vague and coercive” with “quasi-nil premium.” But until Monday, management had held out on giving a final opinion and recommendation to shareholders.
“UniCredit’s takeover offer does not offer an adequate premium to our shareholders. What is described as a combination is in fact a restructuring proposal that would massively impact our proven and profitable business model,” said Commerzbank CEO Bettina Orlopp.
The opposition is likely to further drag out the battle for control of one of Germany’s top banks that started in 2024 when UniCredit began amassing its stake in a competitor that has grown close to 30%.
It sets the stage for a tense event on Wednesday when Commerzbank convenes its annual shareholder meeting.
In a brief statement on Monday, UniCredit said it fundamentally disagreed with many of Commerzbank’s statements, calling them “unfounded or unsupported” and that it would respond with more detail “in due course.”
UniCredit’s CEO Andrea Orcel has argued that Commerzbank has not been living up to its potential and that Europe would benefit from bigger banks in a world of chaotic geopolitics.
Commerzbank’s “current trajectory will put at risk its survival in the medium term,” Orcel said last month.
Commerzbank said in its analysis that a takeover by UniCredit could result in up to 11,000 full-time job cuts. It also warned that investors who accepted the offer exposed themselves to UniCredit’s business risks in Russia and its large Italian government bond holdings.
Türkiye’s unemployment rate edged lower in the first quarter of the year, even as the number of employed people and overall labor force both declined, official data showed Monday.
The unemployment rate fell 0.1 percentage point from the previous quarter to 8.2%, the Turkish Statistical Institute (TurkStat) said. Unemployment stood at 6.8% for men and 11.1% for women.
The number of unemployed people declined by 52,000 to 2.89 million during the January-March period.
However, the number of employed people also fell by 301,000 from the previous quarter to 32.22 million, the data showed. As a result, the employment rate dropped 0.5 percentage points to 48.3%.
The employment rate was significantly higher among men at 65.7%, compared with 31.3% for women.
The labor force also contracted, falling by 353,000 to nearly 35.12 million. The labor force participation rate declined 0.7 percentage points to 52.6%.
Youth unemployment steady
Unemployment among young people aged 15-24 remained unchanged at 15.2% in the first quarter.
Within this group, the jobless rate stood at 12.6% for men and 20.4% for women.
According to TurkStat, employment fell by 44,000 in agriculture, 20,000 in industry, 48,000 in construction and 189,000 in services.
Despite the declines, the services sector continued to dominate employment, accounting for 59.3% of total jobs. Industry accounted for 20.2%, agriculture 13.8% and construction 6.7%.
The composite “idle labor force” rate, which includes time-related underemployment, potential labor force and the unemployed, rose 0.6 percentage points to 30.4%.
The data showed the combined rate of underemployment and unemployment stood at 19.8%, while the combined rate of potential labor force and unemployment was estimated at 20.4%.
Swiss watch giant Swatch blamed on Monday the insufficient organisation by shopping centers as a contributing factor to scuffles at around 20 stores worldwide over the weekend, as clients raced to buy a limited-edition timepiece.
Hundreds of people waited through the night or longer, hoping to get their hands on the “Royal Pop” timepieces, billed as a “disruptive collaboration” with the luxury watchmaker Audemars Piguet.
But things turned ugly in New York and several European cities as well as in Thailand on Saturday, with fights breaking out and some security gates vandalised at some of the 220 stores offering the watches.
In France, officers fired tear gas to control a crowd of around 300 would-be buyers outside a Swatch shop near Paris, and four people reported being punched in the crowded mass outside a store in Lille, northern France.
“There were problems… because the lines were extremely long and the organisation by some shopping centres was not sufficient to handle the rush,” Swatch said in a statement to Agence France-Presse (AFP).
It noted similar incidents during the 2022 launch of its MoonSwatch collaboration with Omega.
“As with the MoonSwatch, things ‘normalised’ a bit after launch day, especially after we again communicated that the Royal Pop collection would be available for several months,” it said.
Fights and police interventions were also reported at stores in Amsterdam, London and Milan, and Swatch said it had to close stores in several cities for “safety considerations.”
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