Japan’s economic slowdown temporary, says World Bank

JAPAN’S devastating earthquake and tsunami will depress growth briefly before reconstruction kicks off and gives the beleaguered economy a boost, the World Bank said in a report yesterday.

It was too early to make accurate estimates, the report noted, but added that Japan’s experience of recovering from the 1995 Kobe earthquake speaks well for its ability to cope with the triple disaster of this month’s earthquake, tsunami and nuclear crisis.

“If history is any guide, real GDP (Gross Domestic Product) growth will be negatively affected through mid-2011. Growth should pick up in subsequent quarters as reconstruction efforts, which could last five years, accelerate,” the World Bank said in a supplement to its semi-annual East Asia and Pacific Economic Update.

“A temporary growth slowdown in Japan will have a modest short-term impact on the region,” the Washington-based lender added.

The World Bank did not offer its own forecast about the likely cost of Japan’s disaster. Citing private estimates, it said the toll could range from $122 billion to $235 billion, or 2.5 to four per cent of gross domestic product. The 1995 Kobe earthquake caused $100 billion in damage, or about two per cent of GDP.

Private insurers are likely to bear a small portion of the cost, leaving most to be covered by households and the government, the World Bank said.

Looking at the impact on developing nations in East Asia, the World Bank outlined the potential transmission through trade and finance channels.

It noted that Japan accounted for about nine per cent of the region’s total external trade. That means a 0.25-0.5 percentage point slowdown in Japanese real GDP growth would lead to a 0.75-1.5 per cent drop in exports from developing East Asia, it said.

An additional trade complication could come from disruptions to East Asia’s production chains. Energy costs might also rise as countries review their nuclear power plants, although that could benefit energy producers such as Indonesia, Malaysia and Vietnam, it said.

As for finance, one-fourth of developing East Asia’s long-term debt is denominated in yen, so a one percent appreciation of the Japanese currency translates into a $250 million increase in annual debt servicing for the region, the World Bank said.

The disaster drove the yen up last week, on expectations that Japanese retail and corporate investors would start bringing money home for reconstruction efforts, prompting the Group of Seven rich nations to rein the currency in with its first coordinated currency market intervention since 2000.

Source : Guardian