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Kimberly Amadeo

Economic Impact of Japan's Quake

By March 15, 2011

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Japan's worst earthquake and tsunami in 300 years has pummeled its people. Around 16,000 are dead or missing, while nearly 400,000 are displaced. This includes 200,000 who were evacuated to protect them from radiation levels resulting from explosions at the Fukushima nuclear power plants. While the cost to human life is most important, many also worry about how the damage will affect Japan's economy, as well as the economy of the entire world.

Damage to the Fukushima plant was more similar to the Three Mile Island accident than the Chernobyl disaster.  In total, 11 of Japan's 50 nuclear reactors shut down following the earthquake. Japan's nuclear industry supplies a third of the country's electricity. Therefore, the capacity to produce electricity has been reduced by as much as 40% for now, and probably will be limited to less than 80% of pre-quake/tsunami potential for a very long time. (Source: Carl Weinberg, High Frequency Economics)

The quake hit the north-east section of the country, responsible for 6-8% of Japan's GDP. Damages could exceed 15 trillion yen (3% of GDP), according to Kyohei Morita and Yuichiro Nagai of Barclays Capital.

The quake damaged or closed down key ports, and some airports shut briefly. A total of 22 plants, including Sony, closed in the area. This could disrupt the global supply chain of semiconductor equipment and materials.

Although the Bank of Japan will do its "utmost" to provide market liquidity and ensure the stability of financial markets, the long-term impact will be negative to the country's struggling economy. Any rebuilding will increase the national debt -- already twice a big as Japan's annual economic output. Moody's warned it may cut Japan's credit rating, increasing the country's cost to service its debt.Japan's economy had just started to recover from a 20-year deflationary period and recession.

Economic Impact of Other Disasters

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(Photo Credit: Kiyoshi Ota /Getty Images)

Comments

March 17, 2011 at 8:38 am
(1) JeniferLamug says:

It will somehow take years for Japan to recover its lost.

April 6, 2011 at 10:00 am
(2) Brian Smith says:

This is still very sad. This tsunami is worse than the one that occurred in Indonesia several years ago.

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