On back of the crisis at the Fukushima nuclear power plant in the tsunami-hit zone of Japan, Dun & Bradstreet (D&B) today downgraded Japan's risk indicator from DB2c to DB3a with a negative outlook. Another reason attributed to the downgrading are the power shortages affecting eastern Japan since the tsunami hit the Pacific coast of the Tohoku region in March.
According to D&B even if nuclear safety concerns are resolved, reconstruction is expected to be delayed until the third quarter due to the severe disturbance to supply chains and infrastructure. The scale of the shock to supply chains nationally and for Japan's external trade, will only become clear in coming weeks. Overall the firm's assessment is that the challenges are considerably more serious than the 1995 Kobe earthquake which resulted in losses of over $100 billion.
D&B has also revised its real GDP growth forecast for the country for the year 2011 from +0.6 per cent to -0.4 per cent, assuming that no major civil emergency is created by nuclear fears. Also their inflation forecast for Japan in 2011 is now positive at +0.6% against a previous forecast of mild deflation.
The company added that even in a best-case scenario, the major gap in baseload generating capacity in eastern Japan due to the offline status of several nuclear plants will lead to industrial shutdowns, in areas remote from the immediate tsunami impact, lasting weeks, impeding the start of reconstruction until after the second quarter. As power is being rationed, households will get a preference over industry. Road, rail and water and electricity outages that is power failures will complicate the task of increasing coal, natural gas and fuel oil deliveries from overseas. Several large importers will as a result have to declare force majeure imminently. Not only nuclear plants but also some thermal power plants have been shut down, and one-third of refinery capacity has been offline in March.