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| IMF cuts Japan growth forecast in wake of quake damage | IMF cuts Japan growth forecast in wake of quake damage |
| (40 minutes later) | |
| The International Monetary Fund (IMF) has downgraded its view on Japan's economy in the wake of the devastation caused by the earthquake and tsunami. | The International Monetary Fund (IMF) has downgraded its view on Japan's economy in the wake of the devastation caused by the earthquake and tsunami. |
| IMF said it expects Japan's economy to grow by just 1.4% this year, compared to its previous forecast of 1.6%. | IMF said it expects Japan's economy to grow by just 1.4% this year, compared to its previous forecast of 1.6%. |
| However, the Fund said it was confident that Japan would be able to recover from the disaster and get back on track. | |
| It has raised its projection for Japan's growth next year to 2.1%. | It has raised its projection for Japan's growth next year to 2.1%. |
| IMF chief economist Olivier Blanchard told the BBC that growth in Japan would slowdown in the short term, as it grapples with the massive scale of the devastation. | IMF chief economist Olivier Blanchard told the BBC that growth in Japan would slowdown in the short term, as it grapples with the massive scale of the devastation. |
| "This is an enormous human tragedy by any standard," he said. | "This is an enormous human tragedy by any standard," he said. |
| Mr Blanchard added that there was a lot of uncertainty about developments in Japan, especially the nuclear crisis at the Fukushima Daiichi nuclear plant, which remains a cause of concern. | Mr Blanchard added that there was a lot of uncertainty about developments in Japan, especially the nuclear crisis at the Fukushima Daiichi nuclear plant, which remains a cause of concern. |
| The IMF has downgraded its forecast for Japan's growth only slightly. However, analysts say they expect the economy to slow down much more. | The IMF has downgraded its forecast for Japan's growth only slightly. However, analysts say they expect the economy to slow down much more. |
| "We expect the downturn to be larger and it will take long before the economy hits the bottom," said Masaaki Kanno, chief economist at JP Morgan Securities in Tokyo. | "We expect the downturn to be larger and it will take long before the economy hits the bottom," said Masaaki Kanno, chief economist at JP Morgan Securities in Tokyo. |
| "We think the Gross Domestic Product (GDP) growth rate in 2011 will be revised from 1.7% to 0.8%," he added. | "We think the Gross Domestic Product (GDP) growth rate in 2011 will be revised from 1.7% to 0.8%," he added. |
| Supply chain | Supply chain |
| One of the biggest issues facing the Japanese economy is that of getting its supply chain back on track. | One of the biggest issues facing the Japanese economy is that of getting its supply chain back on track. |
| Production at some of its biggest factories has been suspended or halted as manufacturers face a shortage of parts. | Production at some of its biggest factories has been suspended or halted as manufacturers face a shortage of parts. |
| The situation has been further compounded by the rolling blackouts due to a shortage of power. | The situation has been further compounded by the rolling blackouts due to a shortage of power. |
| Analysts say that the situation is likely to remain the same for a while. | Analysts say that the situation is likely to remain the same for a while. |
| "Due to the disruption of the supply chain, industries will remain at slow capacity ratio this month," said Mr Kanno. | "Due to the disruption of the supply chain, industries will remain at slow capacity ratio this month," said Mr Kanno. |
| Mr Kanno added that factories may gradually increase their output levels, but they will encounter more obstacles in the coming months. | Mr Kanno added that factories may gradually increase their output levels, but they will encounter more obstacles in the coming months. |
| "In the summer time we will have another constraint of the electric power shortage," he said. | "In the summer time we will have another constraint of the electric power shortage," he said. |
| "We expect the business activity to fully recover from September." | "We expect the business activity to fully recover from September." |
| Rebuilding push | |
| While growth in Japan is expected to be hit in the short term by the devastation caused, reconstruction and rebuilding work is likely to provide a much needed impetus to the economy. | |
| "Next year we think that growth will be a lot stronger," said Mr Blanchard. | |
| "They will need to rebuild, so investment will go up and growth will be a bit higher," he added. | |
| Mr Kanno of JP Morgan Securities also said that the slowdown this year will be more than offset by growth in 2012. | |
| He said the effects of the reconstruction efforts may start becoming evident as early as later this year. | |
| "Eventually we should expect a v-shape recovery in second half of this year," he said. | |
| However, Mr Kanno warned that given the huge level of Japan's public debt, the government had to be careful about how it funded the reconstruction. | |
| "That is a very difficult problem," he said. | |
| "First the government should finance the supplementary budget by issuing debt, but eventually, at least a part of it, should be offset by a tax rate hike," Mr Kanno added. |