Japan's woes have mixed effect on Asian growth

Tuesday, 26 April 2011 00:00 - - {{hitsCtrl.values.hits}}

The impact of Japan's disaster on growth in the region comes mainly through the trade mechanism.

As port disruptions hamper the flow of goods into Japan, other Asia-Pacific nations will see Japan-bound exports weaken in the near term.

Yet Japan is a heavy importer of energy and raw materials and will need more of these to make up for local shortages and begin reconstruction. Commodity-exporting nations could see demand grow as a result.

Shipments of capital and consumer goods from Japan will also decline temporarily, before recovering in the second half of the year.

Countries using Japanese-made auto and electronics components in their own production will be hardest hit. Japan's disaster will thus subtract from growth in South Korea, Thailand and Taiwan, although this could be partly offset by these countries benefiting from an increase in market share if buyers shift orders away from hampered Japanese firms. Here's a roundup of the anticipated impact across the region:

South Korea: South Korea is reliant on imports from Japan, particularly electronic parts, as inputs to its production processes. Supply shortages will crimp output and thus harm GDP growth.

Taiwan: Exports of electric equipment, machinery, chemical products and metal products to Japan will fall in the near term.

Thailand: Exports to Japan will decline temporarily but reconstruction will later boost demand for raw materials. Supply-chain disruptions will hinder imports of electronics and auto parts, hurting Thai production.

Singapore: Singapore is susceptible in the near term to a decline in demand as the Japanese economy contracts. March's month-on-month decline in exports suggests the potential for production to slow amid supply chain disruptions represents a downside risk.

Hong Kong: Hong Kong could suffer if global trade slows as it relies heavily on port throughput to maintain employment. The near-term decline in import demand as the Japanese economy contracts is the downside risk.

China: Most of China's exports to Japan consist of machinery and basic inputs which should remain in demand during the reconstruction phase. Imports of Japanese autos, machinery and electronics will decline in the near term before recovering. One unknown is the impact on manufacturing exporters, who rely on Japanese parts.

India: Trade with Japan is relatively small. India exports mostly crude materials and mineral fuels, manufactured goods and food to Japan. Most of the medium-term impact to growth may be seen in foreign investment.

Australia: Exports of coal and liquefied natural gas to Japan will likely grow later this year. Demand for iron ore and coking coal will rise as Japanese reconstruction ramps up.

Japan's fresh food needs will also ensure continued strong markets for Australian agricultural products.

A near-term hit to Australia's imports is expected since 75% of Australian purchases from Japan are machinery and transport equipment used to power domestic investment.