Earthquake and tsunami in Japan on March 11, 2011, which caused damage to many factories and led to electricity shortages, radiation leaks at the nuclear power plant as well as falling investor and tourist confidence have severely affected all sectors, particularly industrial, service and agricultural sectors. Apparently, the Japanese economy experienced a contraction of 0.7 percent (YoY) in 1Q11, although production and employment there during 2M11 signaled satisfactory improvements as seen in their industrial Production and Purchasing Manager indices that continued to grow as well as reduced unemployment rate in continuation from 4Q10.
Although the Japanese economy will be boosted by the government budget and gradual improvement in various sectors, severe damage in 1Q11, as well as the power shortages may deter the recovery of industrial sector over the remainder of 2011. As a result, KResearch decreases our forecast on the Japanese economy for 2011 to a 0.3-percent contraction Y0Y, against our former growth forecast. In addition, economic growth in 2Q11 may show a deeper contraction of 1.9 percent YoY, or 1.1 percent QoQ, after shrinking 0.7 percent in 1Q11 YoY, or 0.9 percent QoQ. Nevertheless, the Japanese economy may gradually improve in 3Q11 and report growth in 4Q11.
A better situation for their industrial sector during 2H11 is expected to help alleviate problems on shortages of Japanese automotive components in Thailand, as well as helping boost Thai exports to Japan. Moreover, it is possible that Japanese investors may consider moving their production base to other countries in 2H11 after suffering from the disasters there.
This may be a great opportunity for Thailand to attract Japanese investment by urgently developing specialized workers that are now in short supply, upgrading their productivity to be in line with raising wages and revising government support measures to work in harmony. This will help sustain our position as one of the leading investment destinations in ASEAN.
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