UpdateMarch disasters push Japan economy back into recession

19 May 2011 10:57  [Source: ICIS news]

By Pearl Bantillo

(adds analyst comments, with recasts throughout)

SINGAPORE (ICIS)--Japan slipped back into a technical recession as the earthquake and tsunami of 11 March significantly dented production and exports of the world’s third largest economy.

Its economic output fell by 0.9% quarter on quarter, with the annualised rate of decline at 3.7%, according to data from Japan’s Cabinet Office released on Thursday.

Most economists had been expecting a 2% year-on-year GDP contraction for the March quarter.

A technical recession is defined as two consecutive quarters of shrinking economic output.

Japan may see at least one more quarterly contraction before the economy can return on a growth path, and gain momentum in its recovery from rebuilding the damage caused by the disasters last month, said David Cohen, chief economist at research firm Action Economics.

With its industries still trying to cope with a power shortage more than two months since the disasters that shoved the country into a nuclear crisis, Japan’s economic performance this quarter may be worse than the first quarter’s.

The crisis at the quake-damaged Fukushima Daiichi nuclear power plant is regarded to be on par with the worst nuclear disaster on record at Chernobyl, which occurred 25 years ago.

Safety concerns have prompted the shutdown of some of Japan’s 54 nuclear reactors. The country derives about a third of its power requirements from nuclear energy.

“The big question is centred on the electric power supply – on how quickly they [the Japanese authorities] can restore that – so it doesn’t present a continued severe drag on production. People are still watching that,” said Cohen.

In March alone, manufacturing output fell by a revised record rate of 15.5% month on month, according to the Ministry of Economy, Trade and Industry (METI).

Among the biggest casualties of the power shortage is the automotive sector, which is a major end-market for petrochemicals.

Japan’s giant automakers expect further constraints in profitability in the June quarter after a production slump in the wake of the natural disasters. Many of them have yet to resume full operations at their facilities.

On the petrochemicals’ front, production of ethylene and polyvinyl chloride (PVC) showed declines in April from March.

However, Japan has a history of strongly recovering from such devastations, like the Kobe quake of 1995, said Cohen.

“Granted that the [11 March quake] damage was more severe, rebuilding will provide a boost to the economy,” he said.

Improvement in the global economy will help fuel demand for exports, which will be a major contributing factor in helping shape Japan's recovery from the disaster. "If production [can get] back on stream, [there] would be a [ready] market," said Cohen.

Taking into account a steeper-than-expected contraction in first-quarter GDP, Action Economics revised its full-year GDP growth forecast for Japan downwards, to 0.5% from 1.0%.

Click here for the latest news on the Japan disaster
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Pearl Bantillo
+65 6780 4359

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly