Disaster in Japan: The Economic Impact

The following is a summary of analysts' assessments of the likely economic impact of the devastating earthquake and tsunami that struck the northeast coast of Japan. Most were published before Japan warned on Tuesday that radioactive levels had become significantly higher around a quake-hit nuclear plant.


"It may be too early to discuss how much damage was done to housing and infrastructure, but we suspect it could match that of the Great Hanshin Earthquake in 1995.

"Some of the damage will likely generate reconstruction demand and bolster activity in the coming months as actual restoration begins."


"You will have a drop in economic growth, but after that, of course, a recovery process.

"Because of disruptions to power supplies and transport, you to tend to find drops in (economic growth). But as that infrastructure is repaired in the months ahead, you get a re-acceleration in economic growth. This is by far the most likely outcome.


"The final damages are expected to exceed those from the Kobe earthquake. There is also a need to consider the potentially negative impact on other regions due to the Tohoku region's 'trade economy' character.

"Earthquakes not only curb effective demand (eg. consumption, capex) but also lower potential growth through damage to tangible fixed assets and human capital. In terms of the CPI, we believe the impact will be neutral."


"Based on what occurred after the Kobe earthquake, we think an all-out slump in the Japanese economy caused by the Sendai earthquake is overly pessimistic. However, a V-shaped recovery supported by a rapid upturn in demand driven by rebuilding work in the affected areas is also unlikely.

"We now expect the Japanese economy to take longer than we expected to exit its current soft patch owing to the earthquake and tsunami.

"The consensus forecast on the timing for this exit was Jan-March 2011, while we had projected April-June. However, we now think July-September or possibly October-December is more likely. We expect solid economic recovery to be confirmed in October-December."

(Compiled by Kevin Yao; editing by Vidya Ranganathan)