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News Release

Fiscal 2011-12 Outlook
The Kansai economy in the wake of the Great East Japan Earthquake

July 20, 2011


 The Kansai economy is expected to achieve real growth of 0.9% during fiscal 2011, outstripping the national average (–0.1%), owing to the following five factors.
(i) The impact of the Great East Japan Earthquake has been relatively slight. In fact, the Kansai economy has remained firm, with mining and industrial production for May 2011 exceeding the average for fiscal 2010.
(ii) The power shortages during the summer have not led to compulsory electricity savings, and the impact on gross regional product (GRP) during the July-September quarter will be around –1.1%, (equivalent to an impact of –0.3% for the fiscal year), which is surmountable.
(iii) Corporate earnings are holding steady, and capital investment is expected to recover, albeit at a gentle pace.
(iv) Overtime working hours have returned to the level recorded prior to the Lehman Shock and further demand for labor could lead to new hiring. As a result, consumer spending is expected to see a gentle recovery.
(v) External demand is expected to see continued firm growth, centering on developing countries, which are seeing relatively rapid growth.
 During fiscal 2012, as demand for reconstruction begins in earnest, the Kansai region’s real economic growth is expected to accelerate to 2.3%. However, most demand for reconstruction will be in the Tohoku and Kanto regions, and its impact on the Kansai economy will be limited. Even if reconstruction demand is around the same as the estimated amount of damage caused by the disaster (¥16.9 trillion), the amount of value added generated in the Kansai region will be only around ¥900 billion.
 Assuming that reconstruction work will take three years, the boost to Kansai GRP is likely to be around 0.3% for fiscal 2012.
 Given these factors, the Kansai region’s real growth rate (expected to be 3.3%) is likely to be lower than the national average.
 The greatest risk factor for the Kansai economy is that the power shortages will be prolonged. If the nuclear power stations whose operation has been suspended are not restarted, the power supply-demand balance will once again be tight in winter 2011-2012, and there will be a power shortfall of around 25% in summer 2012. In this case, it is highly likely that major electricity users will face compulsory electricity savings. The impact on Kansai GRP is likely to be significant, at around –3.5% over the July-September quarter of 2012.
 Power shortages may force companies to accelerate the transfer of their operations overseas, and reduced domestic capital investment and the loss of employment opportunities will hinder the growth of the Kansai economy.
 A feature of the Kasai economy during fiscal 2011 and 2012 is that it will be supported by extra-regional demand. Attracting investment is a key issue if the pulling power of intra-regional demand is to be strengthened.
 Given the increasing threat of large-scale power shortages from 2012 onwards and the possibility that companies will speed up the transfer of their operations overseas, bold measures unlike those seen to date will be required to attract further investment. There is a limit to what can be done by local government bodies in a single prefecture, and the Kansai region as a whole should work together to introduced effective and fast-acting measures.

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