Hong Kong: Japan's economy is likely to have a powerful rebound from earthquake rebuilding and then may fade into another "lost decade," said Stephen Roach, non-executive chairman of Morgan Stanley Asia.

The economic "silver lining" of reconstruction "tends to be relatively short-lived in terms of altering the fundamental trend," Roach said in an interview with Bloomberg Television in Hong Kong today.

"A rebound is not going to change the big issues that are still bearing down on the Japanese economy, like weak productivity, declining population because of ageing and the lack of effective and coherent leadership," he said.

Japan's so-called lost decade during the 1990s saw the economy slip in and out of recession and grow at an average rate of about one per cent a year after the collapse of a real-estate bubble. Now, Morgan Stanley forecasts a "short and deep" recession from the March 11 earthquake and tsunami that killed more than 9,000 people and crippled a nuclear power plant.

"There will be a powerful rebound," Roach said today. At the same time, the economist said it's "very hard to make a compelling case" that the nation is emerging from what he described as two lost decades.

Totally unforeseen

Morgan Stanley has cut its forecast for gross domestic product to a contraction of as much as three per cent in 2011, from the previous estimate of two per cent growth. The crisis may affect other economies via goods and services trade, capital flows, financial system contagion and commodity prices, the bank said.

Roach's view contrasts with one potential scenario laid out by economist Simon Wong.

"It's hard to predict. These types of events tend to lead to something totally unforeseen," said Wong, a former Hong Kong Monetary Authority economist who now works at Standard Chartered Plc in Hong Kong. One possibility is that the calamity mobilises policy makers to address long-standing challenges such as the need to rein in Japan's fiscal deficit.

Engineers have resumed work on reconnecting power at the Fukushima Daiichi nuclear plant and Tokyo city officials were handing out bottled water after finding levels of radioactive iodine may make tap water unsafe for babies.

Homeless families

The death toll from Japan's worst postwar disaster climbed to 9,700 today, with 16,501 people missing, according to the National Police Agency in Tokyo. More than 250,000 people are living in 1,913 evacuation centers. The earthquake and tsunami devastated the northern coastline. Japan's government estimates the damage at as much as 25 trillion yen (Dh1.1 trillion), an amount almost four times the hit imposed by Hurricane Katrina on the US.

The destruction will push down gross domestic product by as much as 2.75 trillion yen for the year starting April 1, says a report. The figure, about 0.5 per cent of the 530 trillion yen economy, reflects a decline in production from supply disruptions and damage to corporate facilities without taking into account the effects of possible power outages.