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The real GDP growth of Japan will be negatively affected through mid-2011 in the wake of the devastating earthquake and the subsequent tsunami that hit the country on March 11, according to a World Bank report.
However, the growth will pick up in the subsequent quarters when the reconstruction efforts, which may last five years, gain momentum, says the bank's latest East Asia and Pacific Economic Update.
The report points out that the disruption to production networks in Japan, especially in automotive and electronics industries, will pose problems for its trade with the developing countries in East Asia. For one, Japan is a major producer of parts, components and capital goods that cater to the production chains in East Asia.
The exporters of cars in Thailand have reported that the current supplies of components imported from Japan will last through April, while some plants in Japan are already experiencing shortages of parts sourced from the north-east region.
In electronics, Japan accounts for as much as 36 per cent of the global production of memory chips and the disruption in production has pushed up the prices for Korean companies. Another country to be hit hard is the Philippines where electronics exports account for two-thirds of its total exports.
The report notes that about one-fourth of developing East Asia's long-term debt is denominated in yen, ranging from about 8 per cent in China to about 60 per cent in Thailand. A one per cent appreciation in the Japanese yen will translate into a $250 million increase in annual debt servicing on yen-denominated liabilities held by East Asia's developing countries.
Similarly, Japan is an important source of foreign direct investment (FDI) to East Asia and the largest direct investor in Thailand, the Philippines and Korea and the second or third largest in Malaysia, Indonesia and Singapore. Since the country's focus turns inward on reconstruction works, it may affect the pace of its overseas investments, says the report.
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