Wednesday, March 23, 2011

Damage to Japan's economy may be worse than thought

Japan’s earthquake, tsunami and nuclear crisis could deliver a bigger blow to that nation’s economy and U.S. manufacturers than originally estimated, some economists say, due to extended disruptions to Japan’s power grid and factory supply chains.

No. 1 automaker Toyota said it would halt operations at all its U.S. car-assembly plants through Saturday because of continued delays in part shipments from Japan.

Adobe Systems, the top maker of graphic-design software, said second-quarter profits will fall short of estimates. Japan is Adobe’s second-largest market after the U.S.

Some large U.S. electronics makers likely will shut down due to the temporary loss of components from Japanese suppliers, says Paul Martyn, vice president of consulting firm BravoSolution. Unlike steel or auto parts, electronics are tightly linked, and makers can’t easily shift to new suppliers, he says.

IHS Global Insight expects this week to raise its estimate of the disaster’s toll on Japan’s economy. Simona Mocuta, who heads IHS’ Asia Pacific group, says the firm’s estimate of the decline in Japan’s economic output this year could widen to 0.5% from 0.2% because of rolling blackouts that could extend into summer.

Japan’s growth could hit a low of 0.4% in the second quarter, based on the median forecast of nine economists in a Bloomberg News survey. But Julian Jessop of Capital Economics predicts Japan’s economy will shrink by 2% in the first quarter and 4% in the second.

“We suspect the consensus is giving far too little weight to the blow to confidence and activity from the nuclear crisis,” he says. (read more)