17-Mar-2011 1:27 PM

OECD outlines economic consequences of Tohoku Pacific earthquake

OECD stated (15-Mar-2011) the four prefectures most affected by the earthquake (Iwate, Miyagi, Fukushima and Ibaraki) account for 6 to 7% of Japan’s population and economic output. The destruction caused by the earthquake and the subsequent tsunami is "so large that it is not possible at this point to estimate its economic impact". As a basis for comparison, the OECD noted that the 1995 Kobe earthquake resulted in damage estimated at around 2% of GDP. The area hit by the Kobe earthquake, as a share of GDP, was roughly comparable to the area devastated by the Tohoku Pacific earthquake. Nevertheless, the impact of the 11-Mar-2011 disaster may be much worse, given the greater severity of the earthquake and the subsequent tsunami, according to the OECD.

OECD: "Tohoku Pacific earthquake occurred as the Japanese economy appeared to be emerging from a lull in the latter part of 2010. While disasters reduce economic activity in the short run, subsequent reconstruction efforts tend to boost output growth. The government has started discussions on reconstruction measures. At present, fiscal resources appear limited to the remaining JPY0.2 trillion 0.04% of GDP) reserve fund in the FY2010 budget and the JPY1.1 trillion (0.2%) reserve in the FY2011 budget. However, supplementary budgets to finance reconstruction efforts will expand available fiscal resources. In the wake of the Kobe earthquake, for example, the central government spent about 5 trillion yen (1.0% of 1995 GDP) ... The earthquake and tsunami seriously damaged nuclear power plants in the Tohoku region, which depends heavily on such plants for electricity. Measures to contain overheating at some reactors may render them unusable. An estimated one-fifth of Japan’s domestic nuclear capacity has been closed at least temporarily since the earthquake, resulting in electricity shortages. The authorities plan rolling blackouts in the eastern half of Honshu for at least several weeks beginning 14 March. At its 14 March meeting, the Bank of Japan’s Monetary Policy Board decided to double the size of the asset purchase programme, originally introduced in October 2010, from JPY5 trillion to JPT10 trillion (2% of GDP), while providing ample liquidity. The central bank is also monitoring the impact of the earthquake on financial markets and financial institutions. Equity prices have fallen sharply since 11 March, with the benchmark Nikkei average down by 16%. Sales by foreigners may have helped reverse initial upward pressure on the yen, perhaps reflecting the repatriation of overseas assets by Japanese insurers," Company Statement, 14-Mar-2011.

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