Key recent changes to the economic forecast

NASA Satellite Image of Japan Captured March 1...
Image by NASA Goddard Photo and Video via Flickr

Key recent changes to the EIU’s world economic forecast include: Japan growth cut to 1.4% this year; higher average oil prices; raise in US growth forecast for 2012; slight raise to GDP growth forecasts for the eurozone and reduced level of US dollar appreciation against the euro.

I wonder if this is not rather an optimistic figure. I’m mainly thinking of Japan. They’ve had four unprecedentedly large disasters lately: an earthquake, tsunami, partial power outage, and the nuclear power plant accident, which is the most serious problem at the moment. But this is not all. You can see national health issues rising up, the contaminated food will cause a major drop-off in local agriculture businesses and the damage from the earthquake on the capital stock remains to be seen.

The events seem to turn into a massive leakage of radiation and, unfortunately, to contamination of a meaningful portion of the food supply. Consequently, agriculture in the northeast of Japan is expected to be seriously affected. In such a scenario, distribution channels would be disrupted and Japan’s food imports would go up. On the other hand, industrial production and exports are expected to go down which means that the trade balance could easily fall into deficit. I would expect Japan to be partially recovered by the end of the year if no other major disaster is coming but I still think the economic forecasts I’ve seen so far are too optimistic.

The rest of EIU’s forecasts are common sense considering today’s political agenda.


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