Japan disasters unlikely to hit global economy

Container cargoes piled up in Sendai in northern Japan following the earthquake and tsunami on March 11 Keystone

The World Bank says Japan may need five years to rebuild after the disastrous earthquake and tsunami, which caused up to $235 billion (SFr212 billion) in damage.

This content was published on March 22, 2011 - 08:06
Andrea Ornelas,

The March 11 catastrophe, which killed more than 8,800 people and left more than 12,600 missing, could shave up to 0.5 percentage points from Japan’s economic growth. But the impact on the global economy and Switzerland will be limited, say analysts.

The figures were released on Monday as engineers rigged power cables to all six earthquake-damaged reactors at Japan's Fukushima complex and started a water pump at one of them to reverse the overheating that has triggered the world's worst nuclear crisis in 25 years.

"Damage to housing and infrastructure [caused by the earthquake and tsunami] has been unprecedented," the World Bank said in a report.

Yet it expects growth to increase again in the second half of the year: “Growth should pick up though in subsequent quarters as reconstruction efforts, which could last five years, accelerate,” it said.

The bank gave damage estimates of between $123 billion-$235 billion - the equivalent of 2.5-4 per cent of the country's economic output in 2010 - and cost to private insurers of $14 billion-$33 billion.

Roberto Ruiz Scholtes, head of strategy for UBS Wealth Management Spain, agreed with the bank’s general forecast.

“The Japanese economy will obviously grow less than in 2011 - we estimate one per cent instead of 1.5 per cent which was forecast. But at the same time we have revised 2012 growth upwards from 2.1 per cent to 2.5 per cent due to the reconstruction process that will follow the disasters,” he told

The Japanese economy currently accounts for only six per cent of global economic output, which is why the impact of the disaster is very limited worldwide, he added. In the worst-case scenario it could reduce global growth by 0.1 per cent.

And the impact on Europe and Switzerland is even less, he explained. Only 3.5 per cent of all Swiss exports and one per cent of those from the European Union are sold in Japan.

Credit Suisse echoed this, saying that even in the most pessimistic development in which widespread nuclear damage occurred, the Japanese economy would only fall by 0.5 per cent in 2011, or a 0.2 per cent reduction in global gross domestic product.

Disrupted production lines


But not everyone agreed with these relatively upbeat forecasts.


Singapore Finance Minister Tharman Shanmugaratnam said Japan's nuclear crisis could hurt consumer and business confidence.


In addition, disruptions in Japan are pushing up prices and causing shortages of critical raw materials and parts, especially for electronics, autos and shipbuilding. That in turn slows production in Japan's fast-growing neighbours, who are also suffering a short-term fall off in demand from a major export partner.

Japan's north-east region, where the earthquake and tsunami hit, is home to ports, steel mills and manufacturers of auto and electronic components.


Citigroup said disruption to global manufacturing from Japan's earthquake "is more serious than earlier thought."


"We could see production of goods reliant on Japanese inputs without sufficient inventories temporarily stall, such as electronics, autos and shipbuilding," explained Citigroup economists Johanna Chua and Brian Tan.


The bank said risks to growth appear greatest in Thailand, where manufacturers rely on electronics, car and chemical components from Japan, but South Korea and Taiwan could also be affected.

Swiss impact

In 2010 Switzerland exported goods to Japan worth SFr7.3 billion and imported materials worth SFr3.6 billion.

UBS said the export of luxury goods to Japan, especially watches, could be affected, as well as Japanese tourism to Europe but insisted this would only be temporary and would be resolved by 2012.

Jean-Daniel Pasche, head of the Federation of the Swiss Watch Industry, explained that the Japanese market accounted for five per cent of all Swiss watch exports.

“It’s the seventh biggest market for our products,” he told

2010 was a very strong year for watch sales and 2011 is continuing the same trend; the disaster in Japan will obviously have an impact on demand, said Pasche.

“But the Swiss watch industry should manage as for several years it has been diversifying to be less vulnerable,” he explained. “China, Hong Kong and Japan are clearly our best clients but there is interesting progress in Indonesia and Vietnam and we are working on developing our presence in Eastern Europe and Latin America.”

Nuclear crisis

Japan's reconnection of power to its earthquake-damaged reactors is a major step in managing its nuclear crisis, experts said on Monday, but smoke from two reactors and worries about food safety showed the crisis was far from over.

Engineers rigged power cables to all six reactors at the Fukushima complex and started to pump water at one of them to reverse overheating that has caused the worst atomic crisis since the 1986 Chernobyl disaster in what is now Ukraine.

The US Nuclear Regulatory Commission said Monday that containment at three reactors at Japan's crippled nuclear complex is currently intact and the situation at the plant appears to be stabilizing.  

The World Health Organisation said that radiation detected in food - such as vegetables and milk - was worse than previously thought.

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Situation status (March 21)

A total of 8,805 people were confirmed dead by Japan's National Police Agency as of Monday, while 12,654 were reported missing.

A total of 319,121 people are in shelters around the country after being evacuated.   


The government expanded the evacuation area around a quake-stricken nuclear plant in northeastern Japan to a 20-km (12 miles) radius from 10 km on March 12. Since then, around 177,500 residents have evacuated from the zone. The government has also told people within 30 km of the Fukushima Daiichi nuclear complex, some 240 km north of Tokyo, to stay indoors.   


A total of 220,871 households in the north are without electricity and at least 880,000 households in 11 prefectures are without running water. At least 14,697 buildings have been completely destroyed.

According to the Japanese foreign ministry, 128 countries and 33 international organisations have offered assistance as of Saturday.

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