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How will Japan’s disaster affect Asian economies?

 
AseanAffairs     15 March 2011

Although the three-part disaster in Japan: earthquake, tsunami and nuclear reactor explosions, is still unfolding , the consensus of domestic and international economists is that the economic impact on other Asian economies will be limited.

As reported in today’s News Update, economic and fiscal officials in Indonesia, Malaysia and Thailand all seem to think the impact will not be significant and there may even be an uptick in exports when Japan begins its rebuilding process.

Another factor for other Asian countries could be the shift of manufacturing facilities abroad to countries where there is little chance of a destructive earthquake. Thailand, for example, has no major incidence of earthquakes.

Japan’s imports are mainly raw materials from countries such as Australia, China, Saudi Arabia and the United States. With the disruption of port facilities, these countries may see a decline in the payloads shipped.

International economists cite the resurgence of the Japanese economy following the 1995 Kobe earthquake, however, most feel this latest disaster will probably have a more significant effect on Japan’s gross domestic product (GDP) and the Japanese response may be less robust than in 1995.

The reason for this more anemic reponse is that Japan has the largest ratio of public debt of any government . The public debt is 200 percent more than the GDP. The cost of the cleanup is likely to push Japan’s fiscal debt above the 10 percent of GDP that was projected for this year. According to Moody Analytics, Japan’s tax revenues are among the world’s lowest and the need to raise a variety of tax hikes for reconstruction is essential and a “broad reform of Japan’s public finances will also be required.”

By

Paul A. Ebeling, Jnr