Quake and tsunami a blow to fragile Japan economy - Associated Press

Disaster a blow to already fragile Japanese economy; rebuilding could be a boost later
Paul Wiseman and Christopher S. Rugaber, AP Economics Writers, On Friday March 11, 2011, 5:40 pm

The earthquake and tsunami that struck Japan on Friday forced multinational companies to close factories, fight fires and move workers, inflicting at least short-term damage on the Japan's fragile economy.

Assessing the full economic impact was impossible in the hours after the quake. But traffic clogged streets, trains stopped, flights were grounded and phone service was disrupted or cut off. U.S. companies DuPont and Procter & Gamble said communications problems made it hard to gauge the effect on their operations in Japan.

Japanese stocks plunged. The benchmark Nikkei index fell 1.7 percent, and the Japanese market was only open for about 15 minutes after the quake.

Still, the damage to Japan's economy, the world's third-largest, wasn't nearly as severe as it might have been. The devastated northeastern coastal region is far less developed than the Tokyo metro area.

"Something similar hitting Tokyo Bay would have been unimaginable," said Michael Smitka, an economist who specializes in Japan at Washington and Lee University.

And in the long run, the disaster could help the Japanese economy as reconstruction projects put people back to work.

Natural disasters "do eventually boost output," said David Hensley, an economist at JPMorgan Chase. The 1989 San Francisco earthquake and the 1994 Northridge quake outside Los Angeles, for example, ultimately helped the local California economies, he said.

Takuji Okubo, an analyst at French bank Societe Generale, said Japan's economy will probably take a hit in March and then rebound strongly. Japanese consumers will need to replace lost cars and appliances, and reconstruction will start.

"The earthquake will most likely lead to stronger growth in 2011, rather than weaker," Okubo said.

Okubo noted that industrial production in Japan fell 2.6 percent in January 1995, the month of the devastating earthquake near the city of Kobe. But it rebounded 2.2 percent the following month and 1 percent the month after that.

Overall, Japan's economy grew 1.9 percent that year and 2.6 percent in 1996, Okubo said -- faster than the anemic pace it had been growing. In 1996, private consumption rose at double the rate of an average year between 1995 and 2004.

On Friday, Japanese auto companies halted production at some assembly plants. But it was not clear whether the catastrophe would have a major effect on the global auto industry. Japan's central Aichi prefecture, site of much of the country's auto manufacturing, is far from the disaster zone in northeastern Japan.

Analysts said the damage to production seemed to be limited. But the status of the ports and roads that automakers rely on to move their vehicles remains unclear.

"I don't think in the end it's going to be more than a passing impact," said Ephraim Levy, an auto industry analyst with Standard & Poor's Equity Research. "It would mostly impact Japanese sales, including exports. Some of that may just be deferred rather than lost."

Levy cautioned, though, that it was still hard to assess the damage to Japanese infrastructure. more ...