Tue, Mar 22, 2011 - Page 10 News List

Japan rebuild could take years: report

OUTLOOK:The World Bank said though Japan’s GDP growth will be negatively affected at first, it should pick up in subsequent quarters as reconstruction efforts accelerate

Bloomberg

The World Bank said it might take five years for Japan to rebuild after this month’s earthquake and tsunami, which killed at least 8,450 and destroyed thousands of buildings.

“If history is any guide, real gross domestic product growth will be negatively affected through mid-2011,” the Washington-based lender’s staff said in a report yesterday. “Growth should though pick up in subsequent quarters as reconstruction efforts, which could last five years, accelerate.”

World Bank staff cited private estimates for the damage wrought that range from US$122 billion to US$235 billion. The damper on the economy will have a “modest short-term impact on the region,” with trade and investment flows disrupted, according to the report. The automotive and electronics industries are likely to be most affected, it added.

The World Bank said the 1995 Kobe earthquake and its aftermath might help gauge events following the magnitude 9.0 earthquake and ensuing tsunami on March 11. Liquidity injections by the Bank of Japan and appreciation in the yen, as traders abandon the so-called carry trade amid speculation overseas funds will be repatriated for reconstruction, are “combining to create downward pressure on bond yields,” according to the report.

“A temporary growth -slowdown in Japan will have a modest short-term impact on the region,” the World Bank report said. “Disruption to production networks, especially in automotive and electronics industries, could continue to pose problems. At this stage, it is unclear how the disaster will affect Japanese outward foreign direct investment, but it may dent the pace of overseas investment as the country’s focus turns inward on reconstruction.”

The impact of Japan’s strongest earthquake on record may hurt global economic growth, Singaporean Finance Minister Tharman Shanmugaratnam said in the city-state yesterday.

Japan’s financial systems are functioning without disruption and the impact of the earthquake may not be as big as imagined, Japanese Deputy Vice Minister of Finance for International Affairs Naoko Ishii said in a conference in Singapore yesterday.

“The actual damage to the actual economic activities in the region is severe,” Ishii said. “When it comes to the overall economic impact of Japan, however, it may not be as large as we imagined. GDP share of the three most affected regions is 4 percent of the Japanese total GDP and that region is not necessarily sitting in the industrial heartland.”

Reconstruction activities will offset the effects of the earthquake, Ishii said. Business and consumer sentiment is understandably fragile, as the threat of a radiation leak from a damaged nuclear plant could affect the way of life, she said.

“Private insurers are likely to bear a relatively small portion of the cost, leaving a substantial part to be borne by households and the government,” the World Bank report said.

The cost to the insurers ranges from US$14 billion to US$33 -billion, the report said, citing an estimate by AIR World.

A power shortage after the quake forced companies, such as Sony Corp and Toyota Motor Corp to halt production.

South Korean firms are facing higher prices for memory chips, in part because Japan accounts for up to 36 percent of global production and that production is now disrupted, while Thai exporters of cars report that current supplies of components imported from Japan will last through next month, the World Bank said.

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