Japan's GDP growth slowed to 0.7% in 2018

Companies that supply parts and components to China were hit by weak demand.

Japan’s GDP for 2018 softened to 0.7% from 1.9% in 2017 even as a slight year-end recovery failed to offset a continuous decline in external demand.

The country’s 4Q 2018 GDP rebounded 1.4% YoY following a 2.6% decline in Q3 after domestic demand countered the damaging effects of their decreasing external demand as private spending grew 0.6% QoQ. Exports also bounced back 0.9% from a 1.4% slip in Q3.

However, moderating global demand brought about by the ongoing US-China trade wars has hit some Japanese companies who supplies parts and components to China.

According to a UOB Kay Hian report, economic growth will further ease to 0.5% in 2019 due to external and domestic challenges as private spending is tipped to take a hit after Q4 2019.

“Japan’s 2019 growth outlook will face significant challenges on two fronts: trade uncertainties and domestic market weakness in the face of another sales tax hike,” said Alvin Liew, senior economist at UOB Kay Hian.

As for the upcoming consumption tax hike to 10% from 8% in October 2019, Liew noted that it would soften the chance of reviving consumption in 4Q 2019 and into 2020.