HOW JAPAN’S CRISIS AFFECTS ECONOMIES AND MARKETS
A summary of analysts’
reports evaluating the
economic fallout of the disaster.
IMPACT ON
GLOBAL ECONOMY
Moody’s Analytics: The unfolding
disaster in Japan will be felt across the
global economy, but growth will not be
derailed. Global growth will be boosted
by post-earthquake reconstruction in
the second half of 2011.
Nomura: Natural disasters are local
events and hence tangible implications
for other regions tend to be much
milder. The global sector that tends to
react most to natural disasters is the
insurance sector. It is the insurance
companies that will bear the brunt of
adjusting their provisioning.
Moody’s Asia Pacific Weekly:
Preliminary estimates of insured
losses are $15-$35 billion, and could
rise as losses from the tsunami,
which are not yet fully incorporated
in the range, are refined. These
losses will fall to insurance and
reinsurance companies in Japan
and around the world.
HSBC: Japan’s disaster, though
incomparably tragic, is unlikely to
knock emerging Asia off its current
growth trajectory or provide the
necessary deflationary impulse to
ease rapidly growing price pressures.
IMPACT
ON JAPAN
Moody’s Analytics: In the near
term, damage to Japan’s nuclear
power plants, transport system,
and infrastructure will disrupt
energy, water, and other production
inputs, crippling activity across
Members of Japan’s Self Defence Forces walk through the snow-covered ruins of Kamaishi, Iwate Prefecture, on Wednesday.
both the industrial and service
sectors. As a result, the world’s
third largest economy will contract
in the quarter ending June 30.
Citi Asia Macro Flash: Impact
on Asia’s growth should not be
exaggerated. Looking back at the
Kobe earthquake, Japan imports
from Asia only slowed for about
6 months before rebounding
with particularly strong rebound
in Japan’s imports of capital
equipment.
Nomura: Fears that the earthquake
will induce a major liquidity
shortage appear to be misplaced.
We expect the largest negative
impact on Japanese quarterly GDP
growth will emerge in April to
June. They do not expect a slump
in domestic demand but neither
a V-shaped recovery due to the
extensive area damaged by the
earthquake.
HSBC: There have been no reports
that Japanese manufacturing
sites have been directly damaged.
We view the risk of supply chain
disruption as relatively minor, and
at best temporary.
D&B: Even if nuclear safety
concerns are resolved, we expect
reconstruction to be delayed until
third quarter due to the severe
disturbance to supply chains and
infrastructure.
IMPACT
ON INDIA
RBS: Toyota has postponed the
opening ceremony of its second
plant in Bangalore but has said
the production of the Etios sedan
developed for the Indian market
will not be affected as engines and
transmissions are shipped over a
medium to long term basis.
Citi Investment Research &
Analysis: We see risks of delays and
risks of thermal/coal costs going up
and a possible over-hang on India’s
existing energy challenges. Modest
near-term risks; but in longer term,
India should continue to see Japanese
investments, technology and capital,
with more upside than downside risk.
Damir Sagolj/Reuters
IMPACT ON
INVESTMENTS IN
EMERGING MARKETS
Moody’s Analytics: Financial markets
could suffer additional losses from
spikes in investor risk aversion. These
could trigger portfolio outflows from
fast-growing emerging markets,
causing problems for nations that are
heavily dependent on foreign capital.
Yet many emerging regions still offer
investors attractive fundamentals, thus
any capital flight should be short-lived.
Citi Asia Macro Flash: Near-term,
Japanese companies will likely delay
overseas direct investment plans,
but longer term, we could see greater
demand for Japanese companies to
diversify production bases in more
geologically stable countries.
IMPACT
ON EQUITIES
Nomura: With negative real
interest rates in the majority of
the major economies, investors are
still incentivised to take on risk.
Citi Asia Macro Flash:
Assuming the nuclear fallout is
contained, growth fears in Asia
may be overdone. We think this
opens opportunities to re-enter
paid positions in Asia rates.
Eventually, we could see recovery
in Asia risk assets.
IMPACT ON
ENERGY PRICES
Moody’s Analytics: The disaster
will also lead to higher energy
prices and a stronger yen. The
shutdown of nuclear reactors
at the Fukushima power
station represents an 8% loss
of Japan’s electricity generation
capacity, which will likely be
offset by increased imports of
coal, liquefied natural gas, and
oil, driving up prices for these
commodities.
Citi Asia Macro Flash: Higher
demand for fossil fuels on the
back of Japan’s power supply
shortage and a possible longer-
term bias away from nuclear
energy, coupled with Middle East
and North Africa supply concerns
could add to volatility in oil prices.
Nomura: We believe around 4
refineries equivalent to 20% of
Japan’s capacity and demand
have halted production. As long
as these refineries are down,
imports would need to rise,
thus tightening regional refining
margins