Recession in Japan: How Long Will it Last?

Japan’s first quarter GDP report revealed that their economy shrank by 0.9% during the period, resulting in an annualized 3.7% contraction. This followed a 0.8% quarterly contraction for the last quarter of 2010, which means that Japan is officially back in recession.

Components of their latest GDP release showed that the March 11 earthquake and tsunami damaged production and spending. Private consumption slumped by 0.8% during the quarter while manufacturing output dropped by a whopping 15.5% in March alone. Ouch!

This shouldn’t come off as a surprise since several Japanese companies had no choice but to shut down production after the quake. What’s surprising is that exports still managed to chalk up a 0.7% rise during the period, even though nuclear radiation fears prompted Japan’s trade buddies to reject shipments from Japan.

More than a couple of months have passed since the quake and Japan seems ready to get back on its feet. Now the big question on everyone’s mind is: Is Huck still single???

Well, why don’t you ask her yourself?!

As for me, I’d rather not speculate on my friend’s love life so I’ll just focus on my fundamental analysis instead. Negative growth was already expected for Japan and the more important question is: When will their economic slump end?

The International Monetary Fund (IMF) estimated that the recent quake shaved off almost 5% of Japan’s GDP but growth will bounce back by 2.1% in 2012. Morgan Stanley economists Takehiro Sato and Takeshi Yamaguchi also believe that the Japanese economy will expand again next year. Just like Jay Sean, I bet Japan can’t wait to party like it’s 2012!

Inflation Magic

With all the damage the earthquake and tsunami left on infrastructure, Japan will have to step up its reconstruction efforts in order to get their economy up and running again. Of course the Japanese government will most likely step in and try to stimulate consumption and investment. These are expected to have a positive impact on Japan’s GDP for the latter half of this year.

However, several risks remain which could derail their recovery. Japan is still dealing with the effects of the radiation leaks from the Fukushima Daichii nuclear power plant, which led to widespread power shortages in the country. On top of that, since Japan is sitting right on the Pacific Ring of Fire, there’s always the possibility of another earthquake. Let’s just hope and pray it never happens again.

How about you? How soon do you think Japan will recover? Let us know what you think through our Facebook page or by voting in the poll below!