Sunday, April 03, 2011

Japan's Damage Estimates Bring Economic Opportunities and Threats into Focus


Following the earthquake and tsunami disaster, early damage estimates are beginning to provide a clearer picture of what the future holds for Japan. This week, the World Bank preliminarily estimated the country’s
economic damage between $122 and $235 billion, or roughly 2.5% to 4% of GDP. However, Japanese government agencies and engineers are only beginning to calculate the costs of replacing enormous amounts of infrastructure. The Japanese government this week announced that it would take five years and hundreds of billions of dollars to recover from the disaster. While the economic damage is severe, the World Bank estimates that Japan's economy will accelerate and expand in the second half of the year as reconstruction begins.

Supply chains are already undergoing dramatic changes as manufacturers scramble to find replacements for suppliers that have been closed or slowed by the disaster. Some countries and industries are expected to suffer economic harm as a result of the disaster in Japan. While Asia as a whole will maintain its high growth rate, Taiwan and Thailand receive more than 20 percent of their imports from Japan. South Korea, Malaysia, Vietnam, and Singapore receive between 11 and 15 percent of their imports from Japan. Many of these countries heavily rely on Japan's automotive and electronics industries.

Some countries and industries are set to benefit from Japan's misfortune. South Korea and Taiwan both have export profiles similar to Japan and may be able to benefit from the disaster by increasing exports of electronics and precision machinery. Construction material providers in China, Indonesia, and the Philippines are likely to receive increased orders for the tremendous amounts of cement, steel, and lumber necessary to rebuild the northeast portion of Japan most affected by the earthquake and tsunami.

Within Japan, a whole industry is in danger. One of the villages key to Japan's controversial whaling industry was destroyed by the tsunami and it is not clear whether this declining industry will make a return after the damage is cleaned up. Because of the enormous capital expenses required to operate a whaling venture, the affected companies are unlikely to return without government assistance.

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