Japan GDP growth to slow to 0.5% in 2019

The looming implementation of consumption tax hike will weigh on economic growth.

Japan's economy is tipped to grow 0.5% by end-2019 from 0.8% in the previous year despite a stronger-than-expected Q2 growth of 0.4%, according to Fitch Solutions.

Also read: Japan's GDP growth slowed to 0.7% in 2018

Private consumption is expected to contract 0.3% in light of higher consumption tax. In October, the tax will be raised from 8% to 10%.

This draws parallels to a similar development when private consumption contracted 0.9% in 2014 after Japan increased consumption tax in April of that year.

Household consumption grew 0.7% and 1.0% yoy in Q1 and Q2, but Fitch noted this to be a potential frontloading of purchases ahead of the tax hike.

Likewise, exports is projected to contract 1.2% this year, in light of the US-China trade war and dispute with South Korea on restrictions in exporting chemicals as well as public backlash against Japanese goods.

Exports have already contracted 2.2% and 2.9% yoy in Q1 and Q2.

However, Japan may use the revenue from the tax hike to finance the rise in social security. As such, government consumption is expected to grow 1.9% in 2019.