THE CONSEQUENCES OF THE RECENT

EARTHQUAKE AND TSUNAMI IN JAPAN ON

GLOBAL TRADE.
The Fact & Its Impact

• It is still too early to tell what the full impact of the March 11
earthquake, tsunami and growing nuclear crisis on Japan’s
infrastructure, industrial base and economic growth will be.

• The following is the preliminary analysis of the impact on Japan

and the rest of the world.
Japan
• The scene of devastation along Japan's northeastern coastline is
staggering. Aside from the impact on the workforce, supply
chains are affected, power may be rationed, and government
finances will be stretched.
• The near-term impact on Japanese growth is likely to be negative
and potentially quite large. The reconstruction effort is likely to
get underway and provide a substantial boost to growth.
• The big uncertainty about this disaster is that roughly 10% of
electricity generation capacity (both nuclear and coal) may be off
line for a few months, until oil- and gas-fired plants can ramp up.
• In the near-term, this could have major negative ramifications for
the Japanese industrial sectors; some steel and automotive
factories have already been closed.
• In an attempt to forestall financial panic, the Bank of Japan has
already pumped about $250 billion dollars worth of liquidity into
the Japanese economy.
• Despite concerns about Japan’s already high debt levels, financial
markets are likely to take a benign view of the Japanese
government's reconstruction spending.
• Based on very crude and preliminary estimates, the Japanese real
GDP growth could be cut by 0.2 to 0.5 percentage point this year
and boosted by 0.2 to 0.5 percentage point next year.
• If the nuclear crisis turns into a full-blown catastrophe, then the
negative effect on growth this year will be much larger.
World Economy
• The good news/bad news is that Japan has not been an engine of
global or Asian growth for some time. This means that the
impact of much lower Japanese growth on the world economy
will be probably limited and small.
• However, since Japan’s exports and imports are a relatively
small share of GDP, the economic shock waves will be weak.
Lower Japanese growth could also lower world energy demand
and prices, albeit temporarily.
• The impact on global supply chains could also be significant.
This is especially important in industries such as autos,
telecommunications and consumer electronics. Nevertheless, the
global impact on this event may not be all negative.
• Lower Japanese growth could also lower world energy demand
and prices, albeit temporarily.
• Disruptions in Japanese automotive and steel production may
result in a boost in the demand for these products from other
sources, including the rest of Asia, the United States, and
Europe.
• Rough estimates suggest that the negative impact on global
growth this year will be negligible at most in the 0.1% to 0.2%
range, with a correspondingly small boost to growth next year.
• Japan's problem is that its gross public debt, equal to about twice
GDP, is already the heaviest in the world. The reaction of the
yen in coming weeks is another wild card in assessing the impact
on Japan's economy.
Conclusion On The Fact

• "Natural disasters in large advanced economies

tend not to significantly reduce current
aggregate output or induce an associated rise in
the general price level. In geographically
dispersed economies, disasters are almost
always localized events. But in any economy, it
is the capital stock, not output, that is directly
reduced by the disaster,"
 Thank You

Presentation Team : South Africa