Japan is Back in Recession - And Not Because of the Earthquake

May 19th, 2011
in econ_news

Japan flag Econintersect:  The earthquake and tsunami that struck Japan in March was expected to cause a decline in economic activity.  However, the preliminary estimate of first quarter GDP for Japan, which declined for at a 3.7% annualized rate, cannot be attributed to the natural disaster.  That occurred with less than three weeks left in the quarter.  The full impact of the March 11 event will not be felt until the second quarter, so it is likely that the recession underway in Japan will last at least three quarters.

Follow up:

The fourth quarter saw GDP contract 0.7% (3.0% annualized), so the contraction thus far is 6.7% (3.3% annualized).  The latest results for fourth quarter GDP are much worse than the -0.3% (-1.1% annualized) in the preliminary estimate reported by GEI News on February 13.

Economic activity is down sharply so far in the current quarter and an expected boost to GDP from rebuilding has yet to kick in.  Although rebuilding may start to have an effect in the coming weeks it probably will not have enough impact to overcome the drastic slowdown that has thus far followed the earthquake.

A sense of the extent of the slowdown is reflected in the report in the Financial Times that the government has requested a reduction in electricity demand of 15% because of reduced production capacity.    

Sources:  Financial Times, GEI News and Maxed Out Mama 

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