Japanese growth forecast modified

Japanese growth forecast modified

TOKYO (AFP): The Japanese cabinet modified yesterday its growth forecasts for the coming year to take into account the earthquake in western Japan as Nomura Research Institute projected a major stimulus over two years.

"Next year's figures should be considered with some margin," Economic Planning Agency director-general Masahiko Komura said after the cabinet approved the agency's official growth forecast for the year starting in April.

Komura told a news conference that the quake would add an "unpredictable factor" to the agency's forecast of 2.8 percent growth in gross domestic product (GDP) for the upcoming fiscal year.

Government officials said the phrase had been added to the agency's official forecast to qualify the projection announced in December.

"It is hard to predict the impact because it will cause both negative and positive effects," Komura said. But he added: "I don't think there will be a large difference."

International Trade and Industry Minister Ryutaro Hashimoto reportedly questioned the relevance of the GDP forecasts.

"My question is whether or not projections made before the earthquake are really useful," he said.

"The quake's impact on the future is very serious," Hashimoto said. "Our attention is focussing on the hardest-hit Kobe area but significantly serious effects are already emerging in its environs such as Osaka.

But Nomura Research Institute reckoned the earthquake would boost GDP by between 1.5 percent and 2.9 percent over two years. The affiliate of Japan's top securities firm, Nomura Securities Co. Ltd., also said that quake-related import demand was likely to range from 900 billion yen and 2,000 billion yen (US$9 billion and $20 billion).

Nomura estimated earthquake damage at anywhere between four trillion yen and eight trillion yen ($40 billion and $80 billion), accounting for between 0.8 percent and 1.6 percent of gross domestic product.

Beneficial

The institute said that while the devastation would have a negative effect on the economy at first, the long-term impact would be largely beneficial, echoing similar remarks made by other economists over the past few days.

Potential recovery demand could have the effect of expanding the economy by between 0.5 percent and 1.0 percent in the fiscal year starting in April. But domestic production is likely to contract in the short term with GDP for the current quarter ending in March shrinking by 0.3 percent to 0.8 percent.

The Japanese government meanwhile said it would start monitoring the prices of more than 70 commodities including consumer goods, raw materials and foods amid fears of quake- induced inflationary pressures.

An economic planning agency official said the monitoring procedures, to started next week and to last for about two weeks, would be carried out by three ministries and agencies and also cover distribution costs.

Under the new measures, the international trade and industry ministry will monitor prices for such commodities as oil, steel and cement. The agriculture, forestry and fisheries will monitor food prices and the economic planning agency will follow the prices of daily necessities, the official said.

Despite initial fears that the quake would boost prices for industrial materials, little evidence of inflationary pressures has been observed so far. Even steel prices have been relatively stable despite the closure of two steelworks operated by Kobe Steel Ltd.

The Yomiuri Shimbun reported yesterday that steelmakers, cement producers and glass manufacturers had more than enough capacity to meet an expected 10 percent increase in demand for their products in the aftermath of the quake.

Steel demand is likely to be boosted by anywhere between 500,000 tons and 800,000 tons with the rebuilding of apartments, offices, highways, bridges and port facilities, the newspaper said.

The Nihon Keizai Shimbun reported separately that manufacturers of instant noodles, pre-cooked rice and batteries were already boosting production to meet strong demand and cover reduced output at plants in the Kobe area.