Nuke plant escalation fails to dent rebound expectations

by Aki Ito and Mayumi Otsuma

Bloomberg

An escalation in Japan’s nuclear crisis has failed to dissuade analysts from forecasting an economic rebound starting next quarter, an outlook that hinges on a recovery in business and household confidence.

Gross domestic product may shrink 3 percent in April-to-June, the most since the aftermath of the 2008 Lehman Brothers Holdings Inc. collapse, according to the median of 18 estimates in a Bloomberg News survey in the past week. The GDP loss will be more than recouped by year’s end, with 1.9 percent and 5.5 percent annual growth rates in the final two quarters, the survey shows.

Prime Minister Naoto Kan’s proposed ¥4 trillion initial reconstruction package may kick-start the recovery from last month’s record earthquake. Companies from Shiseido Co. to convenience-store chain FamilyMart Co. are counting on a shift in sentiment to prompt households to open their wallets and limit the hit to corporate earnings.

“The risk here is that a prolonged consumer-spending slump trumps the boost from government spending even as reconstruction gets under way,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo, who like most analysts sees a single quarterly GDP contraction. “If consumer spending doesn’t come back, that’s going to damp the job market and we could see more contractions in consumer spending in the third quarter on.”

Economic and fiscal policy minister Kaoru Yosano said this week that while the quake’s damage may be “bigger than we initially expected,” a rebound will likely be in place by year’s end.

The Nikkei 225 stock average slid 1.7 percent Tuesday after government officials raised the severity level of the accident at Tokyo Electric Power Co.’s nuclear power plant to match the level of the 1986 Chernobyl disaster.

“The effect of the nuclear crisis has turned out to be more severe and prolonged than we had anticipated,” said Yoshimasa Maruyama, a senior economist at Itochu Corp. in Tokyo. “We thought the nuclear problem would calm down in the April-June period, but it doesn’t seem likely that will be the case.”

Radiation worries threaten the tourism industry, Maruyama said. They could also hit domestic consumer spending as people hold off from outlays, including for eating out due to food safety concerns, said Ni-shi-o-ka of RBS. Private consumption makes up about 60 percent of GDP.

Confidence among Japanese merchants fell at the fastest pace on record last month, the Economy Watchers index released last week by the government showed. The survey of barbers, taxi drivers and others who deal directly with consumers, slid to 27.7 in March from 48.4 in February, the biggest drop since the survey began in 2000.

Retail sales in the world’s third-largest economy may drop as much as 10 percent this year, convenience store chain FamilyMart Co. said last week.

Shiseido Co., the nation’s largest cosmetics maker, said Wednesday that the quake may have reduced its sales by ¥3 billion. A Shiseido factory that makes shampoo and other products was damaged by the temblor.

In the automobile industry, while the top three carmakers are gradually increasing output after the quake, Toyota Motor Corp. told U.S. dealers that assembly disruptions may thin supplies of vehicles into the third quarter.

The government last week said it may impose legal limits to electric power consumption ahead of shortages that are likely to worsen as the summer approaches.

Meantime, Japanese businesses sought ¥7.5 trillion in loans from the nation’s three largest banks, including Mitsubishi UFJ Financial Group Inc., to cope with the disaster, spokesmen of the banks said.

The Bank of Japan last week established an emergency ¥1 trillion lending facility to help affected businesses. Last month it doubled to ¥10 trillion a program to inject liquidity into markets by buying assets such as corporate debt.

An escalation in Japan’s nuclear crisis has failed to dissuade analysts from forecasting an economic rebound starting next quarter, an outlook that hinges on a recovery in business and household confidence.