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World Bank: Disaster could cost Japan $235 billion

21 march 2011, 11:17
Japan's massive earthquake and tsunami could cost its economy up to $235 billion, or 4.0 percent of output, and reconstruction may take five years, AFP reports the World Bank as saying Monday.

"Real GDP growth will be negatively affected through mid-2011," the World Bank said in its latest East Asia and Pacific Economic Update report.

But growth should pick up in subsequent quarters "as reconstruction efforts, which could last five years, accelerate", it added.

The lower end of the World Bank's estimate of the twin disasters' impact was $122 billion, equivalent to 2.5 percent of gross domestic product.

Vikram Nehru, the World Bank's chief regional economist, said the Japan disasters would affect the rest of Asia but it was too early to give estimates of the cost to the region.

"In the immediate future, the biggest impact will be in terms of trade and finance," he told reporters in Singapore.

The World Bank noted that after the 1995 Kobe earthquake, Japan's trade slowed only for a few quarters, with imports recovering fully within a year and exports rebounding to 85 percent of pre-quake levels in the same period.

"But this time around, disruption to production networks, especially in automotive and electronics industries, could continue to pose problems (beyond one year)," the report added.

The auto and electronics industries are already feeling the impact from Japan's deadliest natural disaster since 1923, with production at major companies including Toyota and Sony disrupted.

Thai car exporters who buy Japan-made parts only have enough stocks to last until April while factories in the disaster-hit country are experiencing parts shortages sourced from the devastated northeast coastal region.

GM Korea, the South Korean unit of General Motors, plans to scale back production as it braces for a possible lack of Japanese parts, Dow Jones in Seoul reported Monday.

In the electronics sector, prices of memory chips have shot up by more than 20 percent in some segments, the World Bank said.

Japan supplies up to 36 percent of the world's memory chips.

The World Bank also indicated that reconstruction efforts by Japan may affect East Asian countries holding yen-denominated liabilities, and the foreign direct investment (FDI) by Japanese firms to these economies.

It said one-quarter of the region's developing economies have long-term debt denominated in yen ranging from eight percent in China to roughly 60 percent in Thailand.

"A one percent appreciation in the Japanese yen translates into a $250 million increase in annual debt servicing on yen-denominated liabilities held by East Asia’s developing countries," the World Bank said.

"At this stage, it is unclear how the disaster will affect Japanese outward FDI, but it may dent the pace of overseas investment as the country's focus turns inward on reconstruction."

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