eiu_japan's economy after the quake_march 23_11
DESCRIPTION
Japan is still reeling from the effects of the massive earthquake and tsunami that devastated the north-east of the country on March 11th. The offshore earthquake, measuring 9.0 in magnitude, was one of the largest ever recorded. The tsunami flattened towns and villages, resulting in massive destruction of property and the displacement of hundreds of thousands of people. With thousands still unaccounted for, the death toll is likely to rise rapidly. The disaster has also damaged a nuclear-power plant, resulting in several explosions and prompting the evacuation of the surrounding population. So long as there is no nuclear catastrophe, the impact on national GDP growth is likely to be modest compared with the scale of human trauma. But what will be the main economic implications of the disaster? How will this event hamper business operations? Read the EIU's economic outlook for Japan following the recent catastrophe. Includes three possible scenarios.TRANSCRIPT
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Japan’s economy after the quake
Kilbinder DosanjhSenior Analyst, AsiaEconomist Intelligence Unit
March 23rd 2011
Economist Intelligence Unit26 Red Lion SquareLondon WC1R 4HQUnited KingdomTel:+44 (0) 20 7576 8181www.eiu.com
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Japan’s twin disasters: What we know
• The human cost- likely to exceed 10,000
• Many companies (Sony, Toyota) have shut factories in affected area
A short term issue, and will depend on whether companies can divert orders to other factories
• As much as 10% of national power production temporarily down
• Rolling blackouts will continue until end-April
• Possible long-term impact on power supplies
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Japan’s twin disasters: What we know
• Sendai accounts for half as much economic activity as area affected by Kobe in 1995
• Supply chains nationwide disrupted
• Government debt position (200% of GDP) worse now than in ‘95 (79%)
• Volatility in global financial markets
020406080
100120140160180200
1990 - Q1
1992 - Q1
1994 - Q1
1996 - Q1
1998 - Q1
2000 - Q1
2002 - Q1
2004 - Q1
2006 - Q1
2008 - Q1
2010 - Q1
Government debt, % GDP
Kobe earthquake
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Japan’s twin disasters: What we think we know
• Economy will likely contract in Q2
• Reconstruction (est US$200bn) could start quickly
• Slowdown could be reversed before end of the year
• Our current forecast? GDP +1.4%, down from 1.6%; better result in ’12
• Commodity prices? Yen? To come
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GDP growth, SA QoQ %
Japan did not experience even one quarter of contraction in the aftermath of Kobe in 1995
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Japan’s twin disasters: What we think we know
• Exports to China, US, Southeast Asia could be affected
• Imports from same places at risk
• Replacement suppliers may jump-in
• Japan may repatriate capital
• Less demand for oil, commodities?
• Commodity prices? Yen? To come
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Japan’s growth vs. other major economies
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
1995
1996
1997
1998
1999
2000
2001
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2015
South Korea China Germany US Japan
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Japan is a major consumer of commodities
% of global consumption (2009)Source: Economist Intelligence Unit.
0
2
4
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12
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Aluminium Nickel Zinc Crude oil
Japan US South Korea
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Japan’s twin disasters: What we know we don’t know
• Will the nuclear crisis be contained? If it is not, or if Tokyo is drawn in, all bets on economic
impact are off
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Scenarios for the Fukushima Daiichi nuclear plant: Benign
• Benign scenario: 70%
• Worries about radiation poisoning have triggered panic-buying of supplies, prolonged office closures
• Economic activity in areas of Japan that did not sustain serious physical damage could return to normal fairly
* Assigned EIU probability is subject to change as events continue to unfold.
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Scenarios for the Fukushima Daiichi nuclear plant: Persistent uncertainty
• Persistent uncertainty scenario: 27%
• Even if the latest emergency measures succeed, as yet unforeseen problems could surface in the other reactors
• This, in turn, would delay the reconstruction-driven up-tick in the rate of economic growth
* Assigned EIU probability is subject to change as events continue to unfold.
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Scenarios for the Fukushima Daiichi nuclear plant: Worse-case
• Worse-case scenario: 3%
• The outlook would deteriorate dramatically in the worst-case scenario of a nuclear meltdown accompanied by widespread contamination
• The economic costs of the disaster would multiply accordingly
* Assigned EIU probability is subject to change as events continue to unfold.
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About the Economist Intelligence Unit (EIU)
Research arm of The Economist Group for business executives650 analysts and industry specialists worldwide covering
• Analysis and forecasting for over 200 countries and territories
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Visit www.eiu.com to register for free macroeconomic information on 187 countries
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EIU’s Japan Analyst
Kilbinder DosanjhSenior Analyst, Asia
Economist Intelligence Unit
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