Japan’s economy yet to recover from quake

Japan's post-quake economic recovery is likely to fall short of our previous expectations, Standard & Poor's Ratings Services said in a report. The economy’s set to post only 1.2% GDP growth in the second half of 2011, in our view, bringing full-year GDP close to 0%. We expect Japan’s economic growth to pick up in 2012, at 2.3%. Our pre-quake estimate for 2011 GDP growth had been 1.3%, which would have placed Japan among the front-runners of developed economies in rebounding from the global downturn.

Japan’s economy has shown some signs of recovery after the Great East Japan Earthquake and tsunami in March and the ensuing nuclear crisis. However, several factors appear to have hamstrung the recovery, including the government's slow policy response to the disaster. Delays in government programs have hampered reconstruction efforts in disaster-hit areas, business and industrial sectors continue to struggle with power shortages, and the government made an about-face in its energy policy by saying it would consider halting use of nuclear power, although Yoshihiko Noda, the new prime minister, has said the country would aim for a more gradual phase-out to reduce the shock to the economy.

Meanwhile, uncertainty over the global economy and the looming risk of a double-dip recession in the U.S. have overshadowed a rebound in Japanese exports. The yen's sharp appreciation against major currencies may also undermine Japan's recovery. As a result, we see the rebound in the second half of 2011 as likely to be less robust than our earlier expectations.