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Quake cuts Japan growth sharply

(AFP) - Japanese growth will be hit sharply by last month's devastating earthquake but the economy should begin to pick up again in the third quarter as reconstruction kicks in, the OECD said Tuesday.

The Paris-based Organisation for Economic Development and Cooperation said in a report that at this stage establishing the impact of the earthquake, tsunami and resulting nuclear disaster was very difficult.

However, as a first estimate, "growth in Japan might be reduced between 0.2 and 0.6 percentage points ... in the first quarter and by somewhere between 0.5 and 1.4 percentage points in the second quarter," the report said.

"This includes the impact of the disaster on production in the areas hit directly, the rationing of power, the hit to confidence and supply chain disruptions.

"Reconstruction efforts are likely to begin relatively quickly and these could begin to outweigh the negative effects ... as early as the third quarter."

At the same time, the OECD said growth in the Group of Seven top industrialised countries, excluding Japan, appears to have been faster than expected in early 2011.

As a result, the OECD said it expected "growth in the G7 economies outside Japan could rise to an annualised rate of about 3.0 percent in the first half of the year."

The OECD, which groups the world's top developed economies, said that while labour market conditions have been improving, OECD-wide unemployment remains more than two percentage points above pre-crisis levels.

Inflation, too, due to rising commodity prices is on the increase, it added.

In terms of downside risks, the OECD said instability in the Middle East and North Africa driving oil prices higher "could act as a drag on economic activity in the near term."

The continuing eurozone debt crisis, especially in weaker member states, was another source of concern, it added.

On the positive side, the OECD said "non-financial corporate balance sheets look very healthy and this could add momentum to economic growth via private investment.

"Moreover, in spite of still high unemployment in many countries, developments in labour markets look better than expected a few months ago, which could have a favourable impact on private consumption.

"More generally, the underlying momentum in economic growth in most countries appears stronger than in earlier projections," it said, adding that overall "it seems likely that the recovery is becoming self-sustained."

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