Economists Weigh in on Disaster in Japan

In the aftermath of a series of earthquakes and a tsunami that has also destabilized a number of the country’s nuclear-power facilities, Japan’s economy is likely to see positive and negative effects from the disaster, economists write. While the report, issued by economists Takahide Kiuchi and Kohei Okazaki, uses the Kobe earthquake of 1995 as a reference point, it is also careful to note that the still-evolving nature of last week’s disaster makes estimating its impact on financial markets “problematic.”

Negative economic effects described by the report are expected to last as long as six months and are attributed to the loss of material resources such as housing, industrial facilities and offices, and public infrastructure. A reduction in consumer activity also is expected to adversely affect gross domestic product. Expanded public, capital and housing investment expected to accompany medium- and long-term efforts to rebuild will deliver a positive effect on the economy, according to the report.

The disaster is also expected to delay Japan’s exit from its economic lull. “We expect the negative impact on real GDP growth to be greatest in Apr–Jun, but we believe it is too pessimistic to expect a sharp downturn in the Japanese economy,” according to the Nomura report. “On the other hand, we do not expect rapid expansion in rebuilding demand stimulated by significant government spending to drive a V-shaped recovery, given the precedent of the Kobe earthquake and the delays to funding then.