Japan economy to shrink 0.7% on quake-related woes - IMF

08 June 2011 09:36  [Source: ICIS news]

SINGAPORE (ICIS)--Japan’s economy is expected to contract by 0.7% this year, largely on account of supply disruptions following the massive earthquake that struck the country in March, a global financial stability watchdog said on Wednesday.

The 9.0-magnitude quake and the tsunami that struck northeastern Japan on 11 March wrought widespread damage to infrastructure, with industries still recuperating from the blow.

“The initial shock of the disaster was severe, but swift and decisive action by the government and the Bank of Japan [central bank] helped to limit its impact on the economy,” the International Monetary Fund (IMF) said after a review of recent economic developments in Japan.

The economy slipped into a recession, posting a surprise contraction of 3.7% in the first quarter of 2011. Economists are expecting the numbers in the second quarter to be worse.

The IMF, however, said recovery will come in the second half of the year as supply constraints ease and reconstruction spending accelerates.

The economic conditions should continue improving next year, backed by exports and continued public spending, it said. The IMF is projecting a 2012 GDP growth of 2.9% for Japan, it said.

“Uncertainty surrounding the outlook is unusually large with the risks mainly on the downside,” the IMF said.

Japanese industries are still coping with power shortages following the nuclear crisis that occurred after the earthquake and tsunami.

“Delays in resolving supply disruptions and rebuilding electricity capacity could hold back private consumption and investment, while a slowdown in the advanced economies would weaken Japan’s exports. On the upside, a faster easing of supply constraints would give a lift to exports and investment,” the IMF said.

By: Pearl Bantillo
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