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World Bank: Rebuilding Japan 'will take 5 years'

It will take around five years for Japan to rebuild following the earthquake and tsunami that struck the country earlier in the month, it has been predicted.

The World Bank noted reconstruction efforts are likely to take half a decade to complete, if the lessons taught by previous natural disasters are anything to go by.

In a report, the Washington-based lender's staff said that real gross domestic product growth will be stifled throughout mid-2011.

They noted: "Growth should though pick up in subsequent quarters as reconstruction efforts, which could last five years, accelerate."

According to the World Bank, estimates on the cost of the rebuilding programme vary considerably - some have cited around $122 billion while others have forecasted closer to $235 billion.

Trade and investment flows are likely to be disrupted in the short-term, the officials noted, adding the most affected industries will be the automotive and electronics sectors.

They observed: "It is unclear how the disaster will affect Japanese outward foreign direct investment, but it may dent the pace of overseas investment as the country’s focus turns inward on reconstruction."

East Asian nations may find the rising yen results in increased debt-servicing costs, the report warned, calculating that a one per cent appreciation in the Japanese yen translates to around a $250 million increase in annual debt-servicing on yen-dominated liabilities.

The experts added that in order to keep inflation expectations from escalating, policy makers across the east Asian region will need to tighten monetary policy.

Bloomberg Businessweek recently reported that a similar reconstruction effort is underway in Australia following flooding and a cyclone in Queensland.

The area's premier Anna Bligh claimed the process is likely to cost A$6 billion and it could take up to two years to bring the region back to how it was before the natural disasters struck.

By Claire Archer