Japanese aftershocks

This entry was posted on 08 April

There has been only one story in Japan since the end of February – the earthquake and its aftershocks, both human and economic. Whilst news analysts have contemplated the human devastation, markets have focused their attention on the costs of the disaster, ie: the rebuilding, its effects on economy and the extent to which companies may be affected.

The market’s immediate response was to assume the economic impact would be catastrophic. In many ways it was a fair assumption – Japan’s economy was already on its knees, with government debt standing at over 200% of GDP (the highest of any developed nation). Economists seriously questioned how a Japanese government in an already weak position could support the colossal rebuilding costs required. However, towards the end of the month, more sanguine assessments emerged. Goldman Sachs estimated the impact on real GDP could be to reduce it by 0.5% or more in 2011. The group thinks the final figures will depend on how long the power outages continue. If they are all but over by the end of April, the impact will be far lower than if they continue into June or July.

Certainly, the majority of economists expect what impact there is to be short and sharp. A number have even suggested that, once the immediate difficulties are dealt with, the rebuilding of infrastructure in Japan may provide a much needed boost to the economy.

The contents of this article should not be construed as advice and do not necessarily reflect our views. Independent Financial Advice should always be attained in order to assess your own individual circumstances.