Japan earthquake to exacerbate Asia's slowdown

Japan's devastating earthquake will further slow growth in Asia, where rising oil prices and higher interest rates are already cooling an engine of the global economy, economists say.

No one is predicting a massive slowdown, but as the grim human toll of Japan's March 11 quake mounted Monday and fears of spreading radiation and prolonged power outages grew, forecasts about the economic effect of the quake also darkened.

Few economists are ready to specify just how big Asia's slump will be because of the uncertainties over Japan's Fukushima Dai-ichi nuclear plant and when power shortages - which are hitting industrial production - will be resolved.

"You are clearly not talking about reducing growth estimates by 50 percent for the region," said UBS economist Duncan Wooldridge. "It's likely to be measured in increments of maybe 25 basis points."

Growth in East Asia was already slowing after a post-financial crisis rebound and is likely to cool further as central banks raise rates to tame inflation, the World Bank said Monday.

Its pre-quake forecast pegged regional economic growth at 8 percent in 2011 and 2012, down from 9.6 percent in 2010.

The quake's impact on Asian output stems not so much from a slowdown in Japan itself - which has contributed next to nothing to regional growth for the last five years - but from Asia's tightly linked supply chains.

Disruptions in Japan are pushing up prices and causing shortages of critical raw materials and parts, especially for electronics, autos and shipbuilding. That in turn slows production in Japan's fast-growing neighbors, who are also suffering a short-term fall off in demand from a major export partner.

Thailand will be hit hardest by Japan's crippled supply chains because Thai automobile manufacturers - which play a significant role in Southeast Asia's second biggest economy - buy nearly two-thirds of all imported motor vehicle parts and accessories from Japan, Citigroup said in a Monday note.