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Japan’s economy after the quake

Kilbinder DosanjhSenior Analyst, AsiaEconomist Intelligence Unit

March 23rd 2011

Economist Intelligence Unit26 Red Lion SquareLondon WC1R 4HQUnited KingdomTel:+44 (0) 20 7576 8181www.eiu.com

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Japan’s twin disasters: What we know

• The human cost- likely to exceed 10,000

• Many companies (Sony, Toyota) have shut factories in affected area

A short term issue, and will depend on whether companies can divert orders to other factories

• As much as 10% of national power production temporarily down

• Rolling blackouts will continue until end-April

• Possible long-term impact on power supplies

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Japan’s twin disasters: What we know

• Sendai accounts for half as much economic activity as area affected by Kobe in 1995

• Supply chains nationwide disrupted

• Government debt position (200% of GDP) worse now than in ‘95 (79%)

• Volatility in global financial markets

020406080

100120140160180200

1990 - Q1

1992 - Q1

1994 - Q1

1996 - Q1

1998 - Q1

2000 - Q1

2002 - Q1

2004 - Q1

2006 - Q1

2008 - Q1

2010 - Q1

Government debt, % GDP

Kobe earthquake

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Japan’s twin disasters: What we think we know

• Economy will likely contract in Q2

• Reconstruction (est US$200bn) could start quickly

• Slowdown could be reversed before end of the year

• Our current forecast? GDP +1.4%, down from 1.6%; better result in ’12

• Commodity prices? Yen? To come

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-2

-1

0

1

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1990 - Q1

1991 - Q1

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GDP growth, SA QoQ %

Japan did not experience even one quarter of contraction in the aftermath of Kobe in 1995

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Japan’s twin disasters: What we think we know

• Exports to China, US, Southeast Asia could be affected

• Imports from same places at risk

• Replacement suppliers may jump-in

• Japan may repatriate capital

• Less demand for oil, commodities?

• Commodity prices? Yen? To come

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Japan’s growth vs. other major economies

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

South Korea China Germany US Japan

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Japan is a major consumer of commodities

% of global consumption (2009)Source: Economist Intelligence Unit.

0

2

4

6

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12

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Aluminium Nickel Zinc Crude oil

Japan US South Korea

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Japan’s twin disasters: What we know we don’t know

• Will the nuclear crisis be contained? If it is not, or if Tokyo is drawn in, all bets on economic

impact are off

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Scenarios for the Fukushima Daiichi nuclear plant: Benign

• Benign scenario: 70%

• Worries about radiation poisoning have triggered panic-buying of supplies, prolonged office closures

• Economic activity in areas of Japan that did not sustain serious physical damage could return to normal fairly

* Assigned EIU probability is subject to change as events continue to unfold.

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Scenarios for the Fukushima Daiichi nuclear plant: Persistent uncertainty

• Persistent uncertainty scenario: 27%

• Even if the latest emergency measures succeed, as yet unforeseen problems could surface in the other reactors

• This, in turn, would delay the reconstruction-driven up-tick in the rate of economic growth

* Assigned EIU probability is subject to change as events continue to unfold.

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Scenarios for the Fukushima Daiichi nuclear plant: Worse-case

• Worse-case scenario: 3%

• The outlook would deteriorate dramatically in the worst-case scenario of a nuclear meltdown accompanied by widespread contamination

• The economic costs of the disaster would multiply accordingly

* Assigned EIU probability is subject to change as events continue to unfold.

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EIU’s Japan Analyst

Kilbinder DosanjhSenior Analyst, Asia

Economist Intelligence Unit

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Holly DonahueSenior Marketing ManagerEconomist Intelligence Unithollydonahue@economist.com+1 212 541 0596