The Japanese government downgraded its assessment of the economy in its monthly report yesterday as the impact of the March 11 quake, tsunami and the Fukushima nuclear crisis take a grim toll on activity and confidence.
It was the first downward revision in 6 months and is in line with the Bank of Japan, which also cut its assessment of the economy last week in the wake of the March 11 disaster, saying it would remain under "strong downward pressure" for some time.
"The economy is showing weakness recently due to the influence of the Great East Japan Earthquake," the government said in its monthly economic report for April.
The March report said the economy was turning to a moderate recovery path, although growth remained weak and there was concern about the influence of the quake .
The government also downgraded its views on key aspects of the economy including exports, industrial production and private consumption, after the disasters (and the Fukushima crisis) disrupted supply chains and triggered power shortages.
"The condition of the economy is no longer flat or at a standstill, but rather the direction is downward," said Shigeru Sugihara, director of macroeconomic analysts at the Cabinet Office.
The government expects the weakness to continue for the near term but with a pickup resuming along with a recovery in production, reflecting solid overseas economies and the effects of various policy measures.
The government also warned of downside risks to the outlook that could stem from power supply constraints running into the northern summer, slow progress in restoring supply chains and the impact of rising oil prices.
The government also cut its assessment on exports for the first time in four months, saying there are concerns about a decline due to last month’s disaster. Previously, it said exports were showing movement towards picking up.
The Cabinet Office also cut its assessment on industrial production for the first time in five months, saying manufacturing activity was stagnating.
The government’s view on private consumption was reduced for the first time in two months, saying that some weakness was seen recently.
The Cabinet Office last month estimated damages from the earthquake and tsunami will be as much as 25 trillion yen (over $US300 billion), prompting calls for a stimulus package as large as 20 trillion yen.
Those projections covered destruction to infrastructure while excluding wider implications to the economy, such as how radiation will affect food and water supply.
And a government linked forecaster has made a stab at providing an estimate of the impact on GDP with a near 2% turnaround in its estimate for March quarter growth.
According to the ESP Forecast Survey for April, released on Tuesday in Tokyo, March quarter GDP is likely to have contracted by an average annualised 0.22% in real terms.
The association, which is under the jurisdiction of the Cabinet Office, slashed its March forecast of positive growth of 1.73 (annual).
The association forecasts Japan’s GDP will contract 2.83% in the April-June quarter, but sees positive growth in the July-September quarter, with the growth figure climbing to 4.59% in the final three months of 2011, and then easing back to a 1.64% growth rate in the March quarter of 2012.
The association lowered its growth forecast for fiscal 2010 to 2.84% (which ended on March 31 last) from the previous month’s projection of a 2.99% expansion.
It saw 0.44% growth for fiscal 2011, down from its forecast of a 1.63% expansion; and a 2.63% rise for fiscal 2012, up from its March projection of 2.01% growth.
And the US catastrophe modelling group, RMS now says the earthquake and tsunami will cost the insurance industry $US21 billion to $US34 billion, and will be the costliest disaster for insurers since Hurricane Katrina in 2005.
The company says the 9.1 magnitude quake caused insured property losses of $US18 billion to $US26 billion, making it the most expensive earthquake loss in history.
Life and health insurance claims will add about $3 billion to $8 billion to the tally, RMS said.
Many of the home insurance claims will be paid by Japanese companies or cooperatives.
The international insurance industry will shoulder claims from businesses. RMS said commercial and industrial payouts will be 30% to 35% of the property loss, or as much as $US9 billion.
RMS had previously estimated that the total economic loss resulting from the earthquake and tsunami, as well as from the impact of the disruptions in power supplies, evacuations and decommissioning several nuclear power stations, would be $US200 billion to $US300 billion.
At the low end of the RMS range, the disaster will be the largest ever property loss for the insurance industry from an earthquake.
The only quakes that rival it are the $US15.3 billion earthquake in Northridge, California in 1995, and the expected $US10 billion or more from the February 22 quake in Christchurch, New Zealand.
