JAPAN DISASTER: OECD slashes 2011 economic growth forecast

21 April 2011 10:01  [Source: ICIS news]

SINGAPORE (ICIS)--Japan’s economy is expected to slow significantly this year on the back of the devastating earthquake and tsunami which struck the country’s northeast last month, the Organisation for Economic Co-operation and Development (OECD) said in a report on Thursday.

Japan’s GDP will expand by 0.8% in 2011, down sharply from a 1.7% growth forecast made in a November report last year, the Paris-based OECD said.

“The immediate impact of the horrendous disaster is likely to be large, extending beyond the areas devastated by the earthquake and tsunami,” it said.

“There is great uncertainty about developments in Japan, including the duration of electricity shortages, the problems at the Fukushima nuclear plant, and the size and timetable of government reconstruction spending,” the report added.

Electricity shortages and disruption to supply chains are expected to significantly reduce output in the second quarter of 2011, although it is likely to be relatively mild compared with the 20% year-on-year drop following the 2008 global financial crisis, the OECD said.

A preliminary report by the Japanese government estimated the damage to social infrastructure, housing and private firms’ fixed capital at between 3.3%-5.2% of 2010 GDP, according to the report.

The country posted a GDP growth of 3.9% in 2010, reversing a fall of 6.3% in 2009.

Material damage from the disasters alone could top $300bn (€207bn), according to government estimates.

"However, the experience of past disasters in Japan and other developed countries suggests that the negative short-term impact on economic output will be followed by a rebound as reconstruction spending picks up," the OECD report said. 

Japan’s economy is expected to expand by 2.3% in 2012, faster than a previous estimate for 1.3%, the OECD said.

Output is expected to rebound sharply from the third quarter of 2011, driven by reconstruction-related fixed investment, but private consumption could remain subdued for the remainder of the year as a result of weak consumer sentiment, the OECD added.

The International Monetary Fund earlier this month slashed its 2011 growth forecast for Japan to 1.4%, versus an estimate of 1.6% before the natural disasters struck.

($1 = €0.69)

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By: Nurluqman Suratman

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