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Goldman says quake will not impact Japan’s GDP

Goldman Sachs economists have maintained their 2011 GDP forecast for Japan despite the quake crisis.


“We estimate that if power outages continue until end-April, they would lower GDP growth by 0.5 percentage points, while outages to end-June would lower growth by 0.8 percentage points. We are still forecasting GDP growth of 1.2% in 2011,” said Chiwoong Lee and Naohiko Baba in a note to clients, according to FT Alphaville.

The pair did advise there remains a “high level of uncertainty” regarding other factors and say the greatest risks ahead for the economy lie in possibility of power outages lasting beyond an expected end point of 30 April. They see the GDP impact as being indirect, and believe capex will rise as a result of reconstruction demand.

Investment strategists at Lombard Odier, meanwhile, say the earthquake “prevents any reversal of the current trend to financial crisis” but say equities may not be as seriously affected as public finances.

“Does the shock structurally reduce expected trend EPS growth? We believe not. It simply depresses earnings below trend now and boosts them above trend later,” the firm’s investment strategy group says.

“If authorities manage to contain the situation, the Japanese equity market would appear to be extremely cheap by historical standards in a particularly loose monetary environment.”

Given the scale of the human cost, it goes without saying that the impact on Japanese citizens will be considerable. With the country still battling against a deterioration in the nuclear situation, the unwinding of carry trades and greater risk aversion have contributed to the yen reaching a record level against the US dollar.

“We expect there is a very high probability Japanese authorities will intervene if the yen rises further from current levels. A stronger currency is the last thing Japan needs right now. Japan was already experiencing economic troubles and a strong Yen will only compound these troubles,” says Ana Armstrong from Distinction Asset Management.

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