Japan quake to knock economy: KPMG

2011-03-11 13:45

Johannesburg - The 8.9 magnitude earthquake that hit Japan on Friday and the major tsunamis which followed along the country's Pacific coast could have significant knock-on effects, an economist has said.

Lullu Krugel, senior economist at audit, tax and advisory services firm KPMG, said although it was still early to assess the extent of the damage, the effects could be significant.

"If one considers the impact that the Great Hanshin earthquake of 1995 had on the struggling Japanese economy at that time, it is clear that the knock-on effects could be significant."

Krugel said that the previous earthquake was generally viewed as a major contributor to Japan's so-called lost decade and the cost was estimated at about 2.5% of the Japanese gross domestic product (GDP) at the time.

The Great Hanshin earthquake measured 6.8 on the Moment magnitude scale (USGS). About 6 400 people lost their lives, mostly from Kobe.

"This time around, we are also looking at a struggling Japanese economy, having recorded a slight contraction in the last quarter of 2010. The expected recovery of 2011 will most definitely be negatively impacted by this event.

"The area where the tsunami and the earthquake took place is an industrialised zone, with a high concentration of manufacturing activity, including automotive manufacturing, petrochemical industries and semi-conductor factories," Krugel said.

Consumption in Japan is expected to fall, which will have a knock-on effect on its trade partners, in a global economy that is still in unsure territory, given the political instability in Libya and Egypt, and still recovering from the global financial downturn.

"The BoJ (Bank of Japan) has said that it will try its best to ensure financial stability, but it has very little leverage to work with, given the low level of interest rates. For developing nations, this event could very likely have an impact on commodity demand, and hence SA could also be impacted," Krugel said.