Home » stock » economic forecasts after japan earthquake - Economic complacency suddenly evaporates

Tuesday, March 15, 2011

economic forecasts after japan earthquake - Economic complacency suddenly evaporates

economic forecasts after japan earthquake - Economic complacency suddenly evaporates : Global financial markets finally woke up yesterday to the economic risks posed by the Japanese earthquake and tsunami after initially shrugging off its effects.

Tokyo’s market plunged 10.55 percent to 8,560.15, while the Seoul market retreated 2.4 percent and Hong Kong 2.86 percent on news of radiation leaks from crippled nuclear power plants.

Many economists initially forecast that the natural disaster in Japan would only have a limited impact based on previous incidents where economies rapidly bounced back due to reconstruction work.

But analysts now say that global financial markets may have been too sanguine about the implications of what is happening in Japan.

“For a start, private domestic demand was already fragile before the disaster struck and the public finances in a dire state. The chances of a rapid economic recovery are slim but the chances of a major fiscal crisis have increased. Given Japan’s importance as a global investor this could have major repercussions around the world,” said Capital Economics, a London-based research firm.

Thomas Byrne, Moody’s senior vice president, said that a tipping point may be reached if the market loses confidence in the soundness of the government’s finances.

The nuclear plant crisis has made the outlook on the global economy unpredictable.

Analysts are saying that latest disaster may have a greater economic impact than the 1995 Kobe earthquake in Japan, which cost the country 2.5 percent of its gross domestic product, or $132 billion.

Korea Automotive Research Institute estimates that a prolonged economic crisis in Japan caused by power shortages, crippled transport and poor consumer confidence could result in losses amounting to 5 percent of GDP.

Industrial production in Japan could slow if cutbacks of electricity supply take a long time to end. Nomura Securities estimates this alone could be a 0.3 percent loss in the nation’s GDP.

A downturn in Japan’s economic growth could affect the Korean economy since Japan is its second-largest export market.

According to the Korea Customs Service, in the first two months of this year exports to Japan amounted to $5.65 billion, which is 48 percent more than the same period a year ago. Imports grew 15 percent to $10.4 billion.

In the first 11 days of this month, exports to Japan were $1.24 billion, up 53 percent from a year ago.

Korean exports could face another challenge since a weaker yen would make Japanese exports more competitive, though this factor must be balanced against the difficulties that Japanese manufacturers will face in overcoming power shortages if they last for a long time.

If industrial bottlenecks in Japan continue, Korea will have to find alternative sources for vital components and manufacturing equipment since Japan is now the main supplier for these goods.

Analysts agreed that investor sentiment is likely to remain cautious until the full extent of the damage in Japan is assessed.

Lee Jae-man from TongYang Securities said, “It is impossible to predict the timing when global stock markets will rebound since an estimate for losses is still unknown. Once an estimate is revealed, no matter how large, that will remove some of the uncertainty hanging over the financial markets.” source joongangdaily.joins.com... For the latest updates PRESS CTR + D or visit Stock Market news Today

Related Post:

Posted by at
Labels:

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)