Japan disaster another worry for global economy

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By ERIKA KINETZ
The Associated Press
Tuesday, March 15, 2011; 7:01 PM

-- Japan's earthquake and nuclear crisis have put pressure on the already fragile global economy, squeezed supplies of goods from computer chips to auto parts and raised fears of higher interest rates.

The disaster frightened financial markets in Tokyo and on Wall Street on Tuesday. Japan's Nikkei average lost 10 percent, and the Dow Jones industrials fell so quickly after the opening bell that the stock exchange invoked a special rule to reduce volatility.

Yet the damage to the U.S. and world economies is expected to be relatively moderate and short-lived. Oil prices are falling, helping drivers around the world. And the reconstruction expected along Japan's northeastern coast could even provide a jolt of economic growth.

A weaker Japanese economy could help ease global commodity prices because Japan is a major importer of fuel, agricultural products and other raw materials, notes Mark Zandi, chief economist at Moody's Analytics. Oil prices fell more than $4 to $97.18 a barrel Tuesday because of expectations that quake damage will slow Japan's economy and reduce its demand for energy.

Even "assuming a drastic scenario," Bank of America economist Ethan Harris estimates, the disaster would shave just 0.1 percentage point off global economic growth - to 4.2 percent this year.

"Japan has not been an engine of global or Asian growth for some time," says Nariman Behravesh, chief economist at IHS Global Insight. "This means that the impact of much lower Japanese growth on the world economy will be probably limited and small."

Japan is only half as important to the world's economy as it was during its last major disaster, the 1995 Kobe earthquake. And the area hit hardest by Friday's quake accounts only about half as much economic output as the area damaged by the Kobe quake, the Organization for Economic Cooperation and Development estimates.

Japan proved resilient after the Kobe quake: Manufacturers returned to normal production levels within 15 months, according to the CLSA. Four in every five shops were back open in a year and a half. All told, Japan's comeback defied dire warnings that it would take a decade to rebuild.

Autos and auto parts make up more than one-third of U.S. imports from Japan. As a result, shutdowns of Japanese auto factories could disrupt production at U.S. plants owned by Japanese automakers.

At the same time, some U.S. auto parts makers could benefit if Japanese plants in the United States substitute U.S. parts for those they usually get from Japan, Behravesh says.

A big wild card is the fate of Japan's damaged nuclear power plants. The Fukushima Dai-ichi plant, the center of the concern, let off a burst of radiation on Tuesday. Radiation levels in the surrounding area subsided by evening, but unease in Japan did not.

"If the nuclear crisis turns into a full-blown catastrophe, then the negative effect on growth this year will be much larger," IHS' Behravesh says.


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© 2011 The Associated Press

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