Signs that the initial blow to economic activity will be even larger than first feared have prompted us to revise our 2011 forecast down further. We now expect Japan’s GDP to fall outright by 1.5% this calendar year and by 1.0% in the fiscal year from April to March (previously our forecast for GDP growth in both periods was zero). GDP should then rebound as activity recovers from the initial shock and reconstruction spending kicks in, but the recovery will be held back by the increases in taxes and cuts in other expenditure required to help pay for the government’s contribution.
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