Japan’s long road to recovery

http://www.theglobeandmail.com/report-on-business/international-news/asian-pacific/japans-long-road-to-economic-recovery/article2028935/

ISHINOMAKI, JAPAN — Japanese call them "zones of obliteration" or "the places of nothing" –nani mo nai tokoro.

In cities such as Otsuchi, Rikuzen-Takada, and Minami Sanriku, where trashed cars sit atop gutted four-storey buildings jutting out from wastelands of pulverized debris, economic activity is almost zero. Destruction in the city of Ishinomaki, former population 160,000, resembles Kobe after the 1995 quake – and Ishinomaki is only one of about 50 coastal areas that remind many people of Hiroshima after the war.

More than two months after the 9.0 earthquake and 15-metre-high tsunami struck, government and business leaders are finally seeing first-hand the shocking scale of devastation along the 600-kilometre-long disaster area. The human and economic losses are so overwhelming, even the government's top advisers are estimating it will take at least a decade to rebuild northeastern Japan. "I think we will not even be finished after 10 years," says Makoto Iokibe, a political scientist recently appointed to oversee the government's reconstruction panel. "It will take three years just to clear debris out of the area."

After initially playing down the economic impact of the March 11 quake, tsunami and nuclear disaster that soon followed, the government on Thursday announced Japan has officially fallen into recession, with gross domestic product shrinking over the past six months. GDP, a broad measure of the value of goods and services produced, fell 0.9 per cent in the January-to-March quarter, a 3.7-per-cent annualized retreat, government data showed on Thursday. The contraction follows a decline of 0.8 per cent between October and December last year. Many analysts expect the GDP decline will continue in the April-to-June quarter, and that power shortages and a breakdown of Japan's supply chain could also drag the economy down until the government's ¥4-trillion ($49-billion) spending package kicks in. "The Japanese economy is expected to remain weak for the time being," Economics Minister Kaoru Yosano told reporters on Thursday.

Many analysts say Japan's downturn is worse than expected. Private consumption, which accounts for about 60 per cent of the economy, fell 0.6 per cent, after an estimated 500,000 tsunami survivors in northeastern Japan were left homeless. "The nuclear disaster showed just how much is wrong in Japan, actually," Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo, told the Associated Press. "And many things that seemed so stable and sure, like electricity supply … are looking not safe at all."

Japan's National Police Agency estimates that at least 200,000 buildings were obliterated, meaning that many small and medium-size enterprises – the backbone of Japan's economy – were liquidated with them. Insurance companies have been hit with more than 400,000 claims for property damage, while many survivors say they had no insurance to cover earthquakes and tsunamis.

With no jobs and no money, the survivors will likely drag down levels of production and consumption in Japan for years. This would mean reduced earnings for Japanese corporations, whose best customers have always been close to home. Sales of cars, trucks and buses in Japan, excluding minicars, fell 51 per cent in April from a year earlier, the Japan Automobile Dealers Association said, the lowest monthly total since 1974. Toyota Motor Corp.'s sales in Japan plunged 69 per cent in April. "After a natural disaster, people tend to refrain from spending," Mr. Yosano said earlier this month. "In some areas, the impact could be very big."

From Hachinohe in the north, where ships lie on roads like beached whales, to the damaged ports and farms of Chiba, an hour's drive from Tokyo, the March 11 tsunami is continuing to hit the economy in northern Japan and the Tokyo area, which together comprise half of the world's third-largest economy, according to investment bank Nomura Holdings.

Almost the entire northeastern fishing industry, which once provided 25 per cent of Japan's seafood, was wiped out. Ships, cars, homes and other debris continue to clog harbours, making shipping impossible in most of northern Japan, home to nine million people. Sales of fish – normally a staple of Japanese diets – have dropped by a third, amid Tokyo Electric Power Co.'s release of radioactive water into the ocean around the stricken Fukushima nuclear power plant.

In Kamaishi, Nippon Steel Corp.'s building partly fell into the port, and its massive yards have become a dump for debris. Further south in the larger urban areas of Kesennuma, Ishinomaki and Sendai, factories and warehouses were gutted by flooding or fires, and reconstruction might be impossible on grounds that have sunk by a metre.

Even the industrious Kansai area in western Japan is feeling the fallout. Osaka-based Panasonic Corp., the world's largest maker of plasma TVs and Japan's biggest maker of home appliances, said on April 28 it will cut 17,000 jobs over two years, and stop investing in plasma and liquid-crystal display operations. Sharp Corp. had to halt LCD production at two plants near its Osaka headquarters owing to lack of industrial supplies.

"We have to hit rock bottom before we can spring back stronger," said Mr. Iokibe, who also worked on the reconstruction of Kobe. "I think everybody in Japan understands how enormous this disaster was. So this is an opportunity to have a springboard to build a new Japan."

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