GDP likely to contract for three quarters

The range of views on the impact of the earthquake on Japan’s GDP remains remarkably wide and government estimates of the cost of repairing the damage, published today, appear to have caused even more confusion. It therefore seems worth reiterating our view that the economy is likely to contract in both the first and second quarters, making three quarterly falls in row after the 0.3% (1.3% annualised) q/q decline in Q4 2010. We then expect GDP growth to be roughly zero in 2011 overall, but with the risks on the downside. Our numbers also still appear to be well below consensus.