Japan's jolt to global economy likely short-lived
Japan's earthquake and nuclear crisis have put pressure on the already fragile global economy, squeezed supplies of goods from computer...
The Associated Press
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 from Tokyo to 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 New York Stock Exchange invoked a special rule to smooth 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 the run-up in 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.
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's contribution to the world economy fell from 18 percent in 1995 to 9 percent in 2010, according to Asian brokerage house CLSA. And the area hardest hit by the quake accounts for just 6 to 7 percent of Japan's output, about half as much as the area hit by the 1995 Kobe quake, the Organization for Economic Cooperation and Development estimates.
Japan has 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.
For now, though, the quake and tsunami, and the threat of contamination from nuclear-plant damage, have spooked financial markets.
Investors are fretting about the effects on companies around the world. Japan, the world's third-largest economy, accounts for about 10 percent of U.S. exports.
It took only five minutes for the Dow to tumble 297 points, or 2.4 percent, on Tuesday, before recovering to close down 1.2 percent. Stocks plunged 11 percent in Japan, 3.2 percent in Germany and 2.9 percent in Hong Kong.
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 usually come from Japan, Behravesh says.
A big wild card is the fate of Japan's damaged nuclear plants.
"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.
Another unknown is the impact of the disruptions to Japan's power supplies. Behravesh estimates about 10 percent of Japan's electricity generation could be offline several months. If so, that would disrupt steel, auto and other production.
Investors fear Japan will struggle to finance reconstruction, which is expected to cost the government at least $200 billion. The government's debt is already an alarming 225 percent of the country's economic output.
Some worry that Japan will sell some of its vast holdings of U.S. government debt to raise money. Doing so would push the prices of U.S. Treasury bonds down and yields up, raising U.S. interest rates.
But Treasury Secretary Timothy Geithner on Tuesday dismissed the fears of a Japanese fire sale.
"Japan is a very rich country and has a high savings rate," he said. It "has the capacity to deal not just with the humanitarian challenge but also the reconstruction challenge they face ahead."
What's more, the Bank of Japan has been buying Treasurys and other assets as it pumps money into the financial system to restore calm.
The quake has disrupted shipment of goods in and out of Japan, blind-siding multinational companies that were bracing for trouble on the other side of the world — at the Suez Canal or elsewhere in the Middle East where protests are destabilizing countries from Bahrain to Libya, says Patrick Burnson, executive editor of Supply Chain Management Review.
Prices for goods that need Japanese parts could rise while companies scramble to find supplies.
Japan supplies computer chips for cellphones and iPads. Objective Analysis Semiconductor Market Research in California predicts the quake will cause "phenomenal price swings and large near-term shortages" of those chips.
Some analysts note that companies and consumers that now buy Japanese products can often find alternatives made elsewhere.
"What is made in Japan now has lots of competitive alternatives that didn't exist 25 years ago," says Peter Morici, a professor at the University of Maryland and a former director at the U.S. International Trade Commission.
"If there aren't as many Camrys in the country this year as there might have been, you might have a couple hundred thousand additional Ford customers. If those people have good experiences with those cars, it could change buying patterns for life."
David Rea, an economist with Capital Economics in London, said, "You'll have Japan's competitors — largely South Korea and Taiwan who are in high-end manufacturing, and China as well — come in and undercut Japanese businesses experiencing disruption from the earthquake."
Port Angeles mill
may see more work
PORT ANGELES — The Nippon Paper Industries mill in Port Angeles may increase production to make up for mills in Japan damaged by the earthquake and tsunami.
The mill's manager, Harold Norlund, told the Peninsula Daily News the parent company said international plants could be called on to increase supply. Officials are still assessing damage in Japan, but four paper mills there have been closed indefinitely by damage to equipment and stock.
The Port Angeles mill has about 250 employees. It makes newsprint and paper for phone directories.
The Tokyo-based parent company, Nippon Paper Group, oversees about 180 affiliates and related companies worldwide.
Sam and Sara Lucchese create handmade pasta out of their kitchen-garage adjacent to their Ballard home. Here, they illustrate the final steps in making pappardelle pasta.