Don't Panic About "Japan Syndrome" Just Yet
Investors hate uncertainty, especially when it comes shrouded in a radioactive cloud. Global financial markets are reacting to fears of a nuclear catastrophe in Japan just as they did nearly 25 years ago after the Chernobyl disaster in Russia -- with a massive sell-off of stocks and commodities. Said one Deutsche Bank Securities analyst:
Of the four broad commodity sectors, we believe energy markets are likely to be most affected since the country imports approximately 85 percent of its energy use, with nuclear power representing just over 10 percent of energy consumed in the country. In July 2007, when the Niigita-Chuestsu-Oku earthquake led to the shutdown of the Kashiwasaki-Kariwa nuclear plant, lost nuclear production capacity had to be replaced by other fuel sources such as thermal coal, natural gas, petroleum products (and direct crude burning).Such concerns will persist so long as Japan struggles to prevent the nuclear reactors battered by Friday's earthquake and tsunami from melting down. As it is, some analysts predict losses from the calamity could top $185 billion, or 3 percent of Japanese GDP. That would make the Sendai disaster more costly in economic terms than the 1995 Kobe quake, which cost an estimated $150 billion. If a large radioactive leak does occur, the economic impact could of course be far greater:
"Today is a panic day," said Beat Lenherr, chief global strategist at LGT Capital Management in Singapore. "The question is, Where is the bottom?"Little economic impact from quake
Despite these fears, and assuming the risks of a meltdown are contained (admittedly a big "if" at this stage), the short-term economic effects of the catastrophe are likely to be less dire. Says economist Ilan Noy of the University of Hawaii:
[T]he likely indirect impacts of this horrific earthquake/tsunami event on growth in the Japanese economy will be quite minimal. The Japanese government and the Japanese people have access to large amounts of human and financial resources that can be directed toward a rapid and robust reconstruction and rebuilding of the affected region. Neither do we have any evidence to suggest that the earthquake is likely to have any enduring monetary effects....Research on the long-term impact of natural disasters on a country's GDP, consumption, trade and other economic variables is more limited. But what data does exist also shows "no evidence of an adverse impact," even for unusually large events, Noy adds.
While acknowledging that the near-term hit to Japanese growth is potentially large, an analyst with consulting firm IHS Global Insight said that reconstruction activity following the calamity could boost GDP. Noy concludes:
[T]here is no evidence from recent data that even large natural disasters have any measurable adverse impact on the national economy of rich developed countries like Japan.Image from Wikimedia Commons
Related:
- Japan Earthquake: Lessons From Kobe Offer Hope for Swift Recovery in Sendai
- Microsoft, Amazon and Zynga: How to Exploit Japan's Natural Disaster
- Lean Production: Another Casualty of the Japanese Quake
- GE's Getting Hammered, but It Won't Take the Fall for Japan's Potential Chernobyl
- Japan's Meltdown Reveals Weaknesses in U.S. Nuclear Power