In Japan, Economic Headaches Abound

JapanWith uncertainties over lingering disruptions to supply chains, weak spending from an anxious consumer base and a declining economic output, Japan’s economic recovery after the March earthquake is looking dim, many analysts have said.

The nation’s gross domestic product shrank a shocking 3.7 percent on an annualized basis in the first quarter of the year, according to Thursday’s government announcement, indicating the earthquake, tsunami and nuclear disaster dealt a much bigger blow to consumer and corporate spending than previously thought. GDP is the total value of goods and services produced in a nation.

Although many manufacturers remain troubled over snarled supply chains, some economists have predicted a surge in demand in the coming months from reconstruction and repairs to disaster-damaged infrastructure, businesses and homes.

Most signs, however, point to a long and treacherous road before the national economy is fully resuscitated. Another major fear is a continued depression of consumer spending, which makes up about 60 percent of the GDP, caused by worries the job market will further deteriorate.

“Supply chain disruptions were no doubt the largest factor” behind the worse-than-expected shrinkage of the economy in the January-March period, according to Kaoru Yosano, state minister in charge of economic and fiscal policy.

Producing a single automobile requires about 30,000 parts, and the lack of even one component can bring production to a standstill.

Nissan Motor Co. Chief Executive Officer Carlos Ghosn said in a news conference earlier this month that the disaster has shown the firm is too dependent on facilities in a few locations for parts procurement. Osamu Suzuki, chairman of Suzuki Motor Corp., has lamented the “complexity of the flow of (auto) parts,” adding, “I don’t think the clogged supply network can be fixed anytime soon.”

Renesas Electronics Corp., a major producer of auto microcontrollers, saw its main plant damaged by the March 11 earthquake and tsunami. The firm said its stockpiles of microcontrollers ? a product vital to the auto industry ? would run out in June. Renesas holds 40 percent of the world microcontroller market.

Amid the supply problems and disaster damage, companies are working hard to return production to normal levels. Toyota Motor Corp.’s President Akio Toyoda has said the company would be able to “raise operation ratios from the beginning of June, which will move up our recovery schedule by one month.”

Many industry leaders have placed their hopes for the future on rising demand for disaster reconstruction.

Although the mood of self-restraint that enveloped the nation following the earthquake has largely subsided, a worsening employment environment could lead to further drops in spending.

Credit Suisse Securities (Japan) took a consumer sentiment survey from April 16-21, asking people if and why they had trimmed spending. Most respondents who reduced outlays, 60.4 percent, said the cuts were “due to anxieties about the economy and income,” followed by 32.2 percent who said they held back “in consideration of people in the disaster-hit areas.”

The findings suggest self-restraint born of sympathy is having only a limited effect on people’s spending habits.

Respondents who said they were considering buying energy-saving air conditioners, refrigerators and other appliances in preparation for possible summer power shortages stood at 19.2 percent, according to the survey.

“Since a lot of consumers are worried about the labor market getting worse, it’s very possible the slowdown in consumption will continue for quite a while,” a Credit Suisse official said.

Some analysts have said a sharp surge in demand in the July-September quarter because of disaster recovery projects could kick-start the economy.

But Mitsumaru Kumagai, a senior economist at Daiwa Institute of Research Ltd., has cautioned the future of the nation’s economy will hinge on whether the electricity supply issue can be solved, as business activity “could be greatly affected by (a limited) power supply situation in the April-June period and afterward.”

Source: McClatchy-Tribune Information Services.