Japan's rebuild may cost $320b

By Alex Kennedy

Japan may need five years to rebuild from the earthquake and tsunami that has caused up to US$235 billion ($320 billion) of damage, says the World Bank.

The March 11 disaster will likely shave up to 0.5 of a percentage point from the country's economic growth this year, the bank said in a report. The impact will be concentrated in the first half of the year.

"Damage to housing and infrastructure has been unprecedented," the World Bank said. "Growth should pick up, though, in subsequent quarters as reconstruction efforts, which could last five years, accelerate."

The bank cited damage estimates between US$123 billion and US$235 billion, and cost to private insurers of between US$14 billion and US$33 billion. It said the government will spend US$12 billion on reconstruction in the current national budget and "much more" in the next one.

A short-term drop in Japan's consumer demand and manufacturing production will also hurt trade with regional neighbours, the bank said.

South Korean electronics companies have seen the price of some memory chips from Japan rise 20 per cent because of disrupted production, while Thai car exporters may run out of Japanese auto parts next month, it said.

"Disruption to production networks, especially in automotive and electronics industries, could continue to pose problems.

"Japan is a major producer of parts, components and capital goods which supply East Asia's production chains."

Japan's northeast, the epicentre of the disaster, is home to ports, steel mills, oil refineries, nuclear power plants and manufacturers of auto and electronics components. Many of those facilities have been damaged, while nationwide power shortages have severely crimped auto and electronics production."

The World Bank said in a separate report that economic growth in developing East Asian countries will likely slow this year as central banks raise interest rates to battle inflation pressure from rising food and energy prices.

The bank expects developing East Asia, led by China, to expand 8.2 per cent this year and 7.9 per cent next year from 9.6 per cent in 2010.

China's economy, the world's second biggest, will likely grow 9 per cent this year from 10.3 per cent last year, the bank said. The forecasts were calculated before the earthquake and tsunami.

The bank said central bankers in the region have been slow to attack the threat of quickening inflation from higher commodity prices, and urged policymakers to ease emergency government spending programmes implemented during 2009's global economic recession.

"Tighter monetary policies, including higher policy rates, are needed across the region in varying degrees to pre-empt the recent rise in food and other prices from exacerbating inflation expectations," the bank said.

"At the same time, governments need to allow their discretionary fiscal stimulus packages to lapse."

- AP

- NZ Herald

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