PARIS (MNI) – The recovery of the Japanese economy from the
catastrophes in March is likely to be gradual, while the impact on the
rest of the world should be limited, provided there is no sharp boost to
oil prices, according to a Bank of France study released Tuesday.

Assuming a five-year reconstruction program in Japan, the study in
the central bank’s Quarterly Bulletin does “not anticipate a rapid
recovery” after the crisis. Activity is expected to contract until the
fourth quarter of this year, giving average full-year GDP growth of 0.6%
after +3.9% last year. This more than the consensus of economists for
+0.3% growth from April but less than the IMF’s April projection of
+1.4%.

“Risks weighing on the outlook for 2011 are currently being revised
upwards” in light of uncertainty over the government’s budgetary
reaction and the impact on sentiment, the report notes, predicting
downward revisions to previous growth projections for this year. The
study forecasts GDP growth of 1.6% in both 2012 and 2013.

“The sharp drop in demand and production in Japan should not
significantly affect the global economy and overall negative
consequences for emerging Asian economies should be limited,” the report
argues, conceding that the impact on supply chains is “difficult to
assess at this stage.”

In the baseline scenario, there would be a marginally negative
impact on global and U.S. growth and a 0.1% positive impact in China
this year. Next year, the positive GDP fallout would be somewhat larger,
especially in China (+0.39%). The impact on inflation would also be
marginal this year and slightly positive next year, reaching +0.26% in
China.

“Oil prices are likely to be more affected by the political and
social instability in the Middle East and northern Africa than by the
consequences of the Japanese earthquake,” the study argues. Coal and gas
prices might be boosted by demand for electricity production in Japan.

Nevertheless, the study tests an alternative scenario assuming a
$20 rise per barrel this year and next. Here, all key countries except
China sustain a negative GDP hit ranging from 0.24% in the Eurozone to
0.59% in the U.S. this year and roughly double the impact next year.
Inflation would increase by just over 1% at the global level this year
and more than 2% next year.

–Paris newsroom +331 4271 5540; e-mail stephen@marketnews.com

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