Power outages could hamper Japanese recovery: IMF

Restoring power and government reconstruction spending are crucial to Japan's economy resuming growth, the IMF said Thursday, after Tokyo put the rebuilding cost of the March 11 earthquake at $309 billion. International Monetary Fund officials said they expected a short-term slowdown, but growth would "rebound" to pre-quake levels and more.
But the potential of sustained power shortages due to the Fukushima Daiichi plant emergency, the shutdowns of other nuclear plants and the radiation threat complicate recovery prospects, they said.
"The uncertainties from the nuclear situation and the power interruptions could weigh on the recovery by disrupting production across the country, and by weighing on corporate and household sentiment," said Ken Kang, the IMF's Asia Pacific division chief. Kang cited Japanese government figures that the damage to the country's capital stock, its economically productive assets, was about double the scope of damage done by the 1995 Kobe earthquake.
"Despite the extensive damage we are of the view that the economic costs are manageable," he said. "We still expect... a similar growth pattern, of a temporary decline in activity, followed by a rebound to beyond pre-quake levels," he said. Japan's government is fiscally fit enough to handle the recovery costs, and boosting spending to rebuild the country would have no long-term impact on its fiscal standing, he said.
"We view Japan as having a relatively ample pool of savings that it can finance its own reconstruction needs," said Mahmoud Pradhan, the IMF Japan mission chief. "The priority at this time is to provide growth." The officials praised Japanese institutions, especially the Bank of Japan, for their "decisive and swift" response to the quake.
"They have successfully stabilised financial markets," Pradhan said. They said the government did not need external aid, and that it had 1.3 trillion yen ($16 billion) available for quick disbursement to start the recovery.
The two officials downplayed the disaster's effect on the regional and global economy, and said Japan's rebuilding needs were not likely to translate into significantly higher prices for oil or other commodities over the long term.
But they said there could be disruptions to the "supply chain" for certain industries that depend on Japanese-made inputs, and many Japanese makers of auto parts and electronics have announced production shutdowns.
Pradhan stressed that it really depended on how long power generation is interrupted, and said that issue, compared to other natural disasters, made it especially difficult for the IMF to make short-term Japanese growth projections. "We expect a normal profile in downturn ... (but) its amplitude is difficult to tell," he said.
Pradhan, meanwhile, said the sharp movements of the yen in foreign exchange markets following the quake had been a threat to the country and praised the G7 governments for intervening to stabilise it. "The movements were disorderly and unhelpful, for the economic and financial stability of a country that has been affected by a very large natural disaster."