Disaster May Boost Japan’s Fragile Economy in Long Run

Friday, 11 Mar 2011 03:45 PM

 

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The earthquake and tsunami that struck Japan on Friday forced multinational companies to close factories, fight fires and move workers, inflicting at least short-term damage on that nation's fragile economy.

Assessing the full economic impact was impossible in the hours after the magnitude-8.9 quake. But traffic clogged streets, trains stopped, flights were grounded and phone service was disrupted or cut off. U.S. companies DuPont and Procter & Gamble said communications problems were making it hard for them to gauge the effect on their operations in Japan.

Still, the damage to Japan's economy, the world's third-largest, wasn't nearly as severe as it might have been. The devastated northeastern coastal region is far less developed than the Tokyo metro area.

"Something similar hitting Tokyo Bay would have been unimaginable," said Michael Smitka, an economist who specializes in Japan at Washington and Lee University.

The Japanese economy has been stagnant for more than a decade. It shrank at a 1.3 percent annual pace in the final three months of 2010. By contrast, the U.S. government estimates that the American economy grew at a 2.8 percent annual rate over the same period.

Japanese automakers halted production at assembly plants in areas hit by the earthquake. One Honda worker died after being crushed by a collapsing wall. Thirty more were injured when walls and parts of a ceiling crumbled at a Honda Motor Co. research facility in northeastern Tochigi prefecture.

Toyota Motor Corp., the world's biggest automaker, shut down two assembly plants. There were no immediate reports of injuries among Honda workers, a spokeswoman said. Parts makers were also shut down.

Nissan Motor Co. stopped production at five of its plants in northeastern Japan and in the Yokohama area near Tokyo. It said two workers were slightly injured at its Tochigi plant and a technical center near Tokyo.

"There will be losses for a couple of months because of disruptions to the supply chain," Smitka says.

Air traffic was disrupted. Seven United flights and two Continental flights from the United States to Tokyo's Narita International Airport were diverted overnight, mostly to other airports in Asia. Delta canceled 29 flights into and out of Tokyo.

Japan is just weeks away from its peak tourism season: late March and early April, when cherry trees blossom, said Alastair Donnelly, co-founder of InsideJapan Tours, a British company that sends more than 5,000 tourists from the United Kingdom, United States, Canada and Australia to Japan each year.

"I encourage people still to travel. Japan will need support from tourism," Donnelly said.

Tourism to the beach communities of Southeast Asia dried up after the 2004 tsunami, devastating the livelihood of the survivors.

"You don't want to make people suffer twice," Donnelly said.

In the long run, the disaster could boost the Japanese economy as reconstruction projects put people back to work, former White House economic adviser Lawrence Summers noted in an interview with CNBC.

Natural disasters "do eventually boost output," said David Hensley, an economist at JPMorgan Chase. The 1989 San Francisco earthquake and the 1995 Northridge quake outside Los Angeles, for example, ultimately helped the local California economies, he said.

James Shuck, an insurance industry analyst for the investment bank Jefferies, estimates the insurance industry's losses in Japan at $10 billion. That would make it the costliest Japanese earthquake for insurers ever. By comparison, the 1994 quake in Northridge, Calif., cost insurers about $15 billion.

The liability in the Japan quake is limited, Shuck says, because it hit outside a major urban area and because only about 10 percent of Japanese households buy earthquake insurance.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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