Economists Believe Japan May Recover Very Quickly

Reuters has an interesting take on how the earthquake and tsunamis will affect Japan’s future economic growth.

“The instinctive reaction when viewing the extensive damage and frantic efforts to secure damaged nuclear reactors is to assume economic havoc will follow.

But researchers who have studied similar disasters in rich countries reach a reassuring conclusion: human resilience and resourcefulness, allied to an ability to draw down accumulated wealth, enable economies to rebound quickly from what seem at first to be unbearable inflictions – be it the September 11, 2001, attacks on New York or Friday’s 8.9-magnitude earthquake, the worst in Japan’s history.

Japan itself provides Exhibit No. 1 in foretelling the arc of recovery. A 6.8-magnitude temblor struck the western city of Kobe on January 17, 1995, killing 6,400 people and causing damage estimated at 10 trillion yen, or 2 percent of Japan’s gross domestic product.

The importance of Kobe’s container port, then the world’s sixth-largest, and the city’s location between Osaka and western Japan made it more significant for the economy than the more sparsely populated region where the latest quake and tsunami struck. Extensive disruption ensued, yet Japan’s industrial production, after falling 2.6 percent in January 1995, rose 2.2 percent that February and another 1.0 percent in March. GDP for the whole of the first quarter of 1995 rose at an annualized rate of 3.4 percent.

“Despite the scale of the disaster, it is hard to find much evidence in the macroeconomic data of the effects of the Kobe earthquake,” said Richard Jerram, chief Asian economist at Macquarie in Singapore and a veteran Japan-watcher.

Indeed, Takuji Okubo, chief Japan economist at Societe Generale in Tokyo, noted that Japan’s economy grew by 1.9 percent in 1995 and 2.6 percent in 1996, above the country’s trend growth rate at the time of 1.5 percent. Private consumption, government spending and, especially, public fixed investment all grew above average in 1995 and 1996, Okubo said in a report. By analogy, the medium-term impact on growth from the latest quake was also likely to be positive, he said.”