Consider the following stories on the cost/effect/aftermath of the Japanese quake
Econbrowser
Given the findings described above, one can conclude that the likely indirect impacts of this horrific earthquake/tsunami event on growth in the Japanese economy will be quite minimal. The Japanese government and the Japanese people have access to large amounts of human and financial resources that can be directed toward a rapid and robust reconstruction and rebuilding of the affected region. Neither do we have any evidence to suggest that the earthquake is likely to have any enduring monetary effects.This observation, however, does not preclude enduring regional impacts. There is almost no research on this question, but some preliminary evidence suggests that similar large natural shocks can have important regional consequences. One widely mentioned prediction is that the population of New Orleans is unlikely to recover from the dramatic exodus of people from the region after Hurricane Katrina. Coffman and Noy argue that a similar and apparently semi-permanent decrease in population is observable for an Hawaiian island that was hit by a destructive hurricane in 1992.
In addition to these potentially permanent regional impacts, of course, this disaster may have impact on other macro-economic aggregates. The fiscal expansion that will follow this disaster will further increase the Japanese government's debt levels, but since this debt largely stays in Japan, and since households (especially credit-constrained households -- see Sawada and Shimizutani) are likely to 'tighten their belts' and reduce consumption temporarily, these other affects are unlikely to be enduring as well.
One caveat is worth mentioning here: We still do not know what will be the impact of the enfolding crisis in the various nuclear reactors that have been affected. The analysis above ignored this danger, though the still present devastation in Chernobyl attests to its potentially destructive powers.
In the medium and long run, many or all of these destroyed assets will be replaced. Some of the funds to do this will come from insurance companies, some will come from the Japanese government, and a substantial portion will come from the savings of individuals and corporations, who will have to dig into their financial assets to start replacing their lost physical assets. Thus we can expect savings rates in Japan to fall for both households and corporations.
And then, of course, these funds will be used to pay for the massive cleanup and rebuilding effort. If we assume that much of the rebuilding money will come from financial assets that would otherwise not have been spent right now, then we could easily expect to see an extra $50 to $100 billion in economic activity over the remainder of this year, largely or completely making up for the lost production of the disaster's immediate aftermath. Construction companies will be the first beneficiaries, of course, but so will producers of all sorts of other physical property that will have to be replaced, such as shipbuilders, car manufacturers, household appliance and electronic companies, and producers of all capital goods used by corporations to manufacture, sell, and distribute their products.
I therefore expect a fairly strong and broad-based economic recovery during the remainder of 2011 from what might be a very ugly Q1 figure for GDP growth in Japan. And if 2011 GDP is unchanged in total, but more of it is squeezed into the remaining three quarters of the year, that means that the pace of economic activity will have picked up. Who knows, it might even be enough to cajole the Japanese economy out of the decade-long deflationary spiral it has been trapped in. While no one would suggest that such an outcome would make worthwhile the horror that Japan is going through right now, let's hope that this disaster does end up leaving something at least slightly positive in its wake.
–At this stage, it’s too early to come up with meaningful estimates of the overall impact of the terrible events in Japan. And, in economic and financial terms, the effects may be dominated by other challenges facing the global economy, including still elevated oil prices and rising interest rates. And much still hinges on the radioactive threat to Japan’s more urbanised areas: if that threat fails to transpire, the [1995] Kobe quake provides a useful framework but if the worst happens, all bets are off. –Stephen King, HSBC
Japan's devastating earthquake and deepening nuclear crisis could result in losses of up to $200 billion for the world's third largest economy but the global impact remains hard to gauge five days after a massive tsunami battered the northeast coast.Goldman SachsAs Japanese officials scrambled to avert a catastrophic meltdown at a nuclear plant 240 km (150 miles) north of the capital Tokyo, economists took stock of the damage to buildings, production and consumer activity.
The disaster is expected to hit Japanese output sharply over the coming months, but economists warned it could result in a deeper slowdown if power shortages prove significant and prolonged, delaying or even scotching the "v-shaped" recovery that followed the 1995 Kobe earthquake.
Most believe the direct economic hit will total between 10-16 trillion yen ($125-$200 billion), resulting in a contraction in second quarter gross domestic product (GDP) but a sharp rebound in the latter half of 2011 as reconstruction investment boosts growth.
"The economic cost of the disaster will be large," economists at JP Morgan said. "There has been substantial loss to economic resources, and economic activity will be impeded by infrastructure damages (like power outages) in the weeks or months ahead."
Q1: What are the biggest differences between the March 11 and [1995] Hanshin earthquakes?
A1: The biggest difference is the widespread power outages this time.
Production is being halted due to power outages and voluntary power cutbacks by large customers. The longer this continues, the greater the impact on production will be. We estimate that if power outages continue until end-April, they would lower GDP growth by 0.5 pp, while outages to end-June would lower growth by 0.8 pp. We are still forecasting GDP growth of 1.2% in 2011. We are not revising our forecast at this juncture, but note the potential impact of continued power outages and the high level of uncertainty with regard to other factors (see Q6 below).
Q2: What are total damages from the earthquake likely to be?
A2: We estimate the damages will be around ¥16 trillion, surpassing the ¥10 trillion total from the Hanshin earthquake.
This total damage estimate refers to damage to the physical stock—buildings, production facilities, and the like. For the impact on GDP, a flow concept that reflects economic activity over a given period of time, see question 4.
