The Major Effects of the Recent Japanese Earthquake and Tsunami on the Wold Economy - Essay Example

The Major Effects of the Recent Japanese Earthquake and Tsunami on the Wold Economy Table of Contents The Main Focus 1 Conclusion 7 References 8 Bibliography 10 Introduction In March, 2011, Japan experienced both earthquake and tsunami, because of which there were certain repercussions in the economy of Japan as well as in the world economy. It was expected by most of the economist that Japan would fall into recession. It was found that nearly 2000 people died in this mishap and it had left the nuclear power reactors of the nation at risk of meltdown. Furthermore, it left most of the people without power and shelters. This study aims at gaining insights into the impacts of Japanese tsunami and earthquake upon the global economy especially the East Asia (Isidore, 2011). The Main Focus It is noted that Japan was facing certain kinds of structural pressures before the earthquake and the tsunami took place. The main problem with the country was related to the ageing workforce and the nonexistence of the immigration of the workers for long-term. It is the workforce growth that can lead to the economic growth of the country and thus Japan was facing the problem of slow growth potential in the near future. The country also is also facing the burden of heavy public debt in the industrial world. The immediate recovery of Japan after such disaster took place has been an issue of concern. However, it can be noted that Japan has been one of the wealthiest countries; moreover the country’s government along with the households and the businesses have the necessary resources to rebuild and thus recover from such disasters. In the country of Japan, since the nuclear plant was damaged to a great extent, therefore it was expected that the transportation system as well as the infrastructure would interrupt the flow of the gasoline, oil, water and other inputs into the process of production. When such disruption takes place, then it affects the other industries such as manufacturing and services as well. It was further expected that the economy of Japan in second quarter of 2011 would contract. However, it was further predicted that the country’s situation would show certain improvements in the third and the fourth quarter of the year 2011 because of the restructuring efforts made by the government through its spending (Beckman, 2011). The above paragraph has been related to the impact of the Japanese earthquake and tsunami on the country of Japan. However, now it is quite significant to understand the impact of such disasters on the overall world economy. 7 percent of the world’s output is contributed by Japan. However, the main point to be noted in this regard is that its contribution towards the growth of the overall economy has been quite less. The reason behind this is that of the trade surpluses in Japan. It has been expected by the analysts that the global economy would surely expand at a rapid pace by more than 3 percent in 2011. When the broad global (Gross Domestic Product) GDP is taken into consideration, then it can be mentioned that the effects of such disasters seem to be minimum. However, some of the countries may face the impact of such earthquakes and tsunamis of Japan in their countries. It has been evident that in Asia most of the countries depend upon Japan so that they can keep their plants operating. This can be explained with the help of an example. South Korea imports around 25 percent of the industrial parts from Japan. Therefore, if there is long-term delay in the shipment of the goods from Japan, then it might affect the production as well as the economic growth of that particular country. It was further apparent that the developing countries in the continent such as Latin America had indirect effects via wider impacts upon the global economic growth. Latin America does not have much of the trade links with Japan since China’s presence is increasing in the region. Latin America exports less than three percent of its total export sales to Japan (Beckman, 2011). It was further evident that in most of the developed countries the industries halted their production since they were not receiving their raw materials for the production. It was proclaimed by the General Motors that they would stop their production for time being because of lack of parts from Japan at their plant in Louisiana, USA that prepares small pick-up trucks. Not only General Motors, but also Boeing, Volvo and BMW have been depending upon the raw materials that they acquired from Japan so that they can continue their production. In this case, if there is any delay in the supply of the raw materials then it might halt the production at their plants. It has been noted that it is quite difficult to figure out the affect of such long-term absence of production in Japan on the companies (Beckman, 2011). It can be mentioned that soon after the earthquake in Japan, there was tsunami along with the fear of the nuclear meltdown that made people’s lives despondent. The country is trying to come back to the grip and is focusing upon the restructuring of the major losses made by the country. The overall cost of damage at Japan has been $38 billion, while the officials of Japan proclaimed that the cost of restructuring and rebuilding Japan may approximately range to $ 200 billion. The World Bank representative stated that all such disasters have hit the economy of Japan to a great extent. However, the impact of the disasters will also be evident on the economies of the world (Howard, 2011). Furthermore, it was stated by the World Bank that the country of Japan would require around 5 years to restructure and to get back to their original position. However, it was also proclaimed that the impact of such disasters upon Switzerland would be quite less. One percent of the goods from European Union and three percent of the goods from Switzerland are sold in Japan. Citigroup announced that the disturbance in the global manufacturing because of the Japan earthquake has been more pronounced this time in comparison to what was thought to be. The bank also stated that there might be risk of growth in the Thailand since the manufacturers tend to rely upon the cars as well as the electronic components to be bought from Japan. However, it further stated that even Taiwan as well as South Korea would get affected. The high value goods such as the computer chips along with the specialised auto parts may have very little sources anywhere else around the world. Therefore, the plants in China, North America and Europe may not be capable of gaining their raw materials from Japan. Therefore, for short period of time such kind of disasters definitely affects the global economy to certain extent. Furthermore, since the Japanese government had to borrow excess amount of funds for the purpose of reconstruction it was expected that this would raise the yield of the bonds all over the globe slowly (Isidore, 2011). It was further found that there was decline in the equity markets all over the globe along with this since the nuclear power facilities got damaged; there was a fear among the economists and the analysts that there would be decline in the economic growth and it might hurt the prices of the assets as well. In comparison to the global markets, the stocks of the Japan were high and it was predicted by the analysts that even the US equities were not performing according to the global standards. It was further predicted by the experts that the impacts of such mishaps on the nuclear energy industry would be negative for short and long-term as well (Rosenbush, 2011). It has been evident that China and the Philippines are more in touch with the developments in Japan rather than the rest of the East Asia. Two-third of the overall exports in Philippines has been that of the electronics. It can be mentioned that in short to medium term period the countries such as Indonesia, Vietnam and Malaysia may gain benefits because of the increased energy prices as Japan tries to restructure and thus to minimise the energy gap that has been used by the loss of the nuclear plant (Rosenbush, 2011). It is apparent that Japan is considered as one of the chief sources of the Foreign Direct Investments (FDIs) to the East Asia. It is the biggest ‘direct investor’ in Thailand, Korea as well as in Philippines. Therefore, it becomes difficult to predict the impact of such disaster on the Japanese FDI. It might, however, slowdown the rate of overseas investment since the country will focus inward upon the reconstruction (Worldbank, 2011). Conclusion It has been found from the above study that the impact of the earthquake and tsunami that took place on Japan upon the global economy has been quite less. Most of the industries that relied upon Japan for their raw material were impacted. Latin America evidenced indirect impacts of the disasters. Even China, America and Europe suffered since they were not receiving their raw materials from Japan. It was found that the East Asian countries such as Indonesia, Vietnam and Malaysia were expected to gain benefits form the disasters. It can be concluded that if the nature of the development could be revised, there would be requirement of new paradigm for the development. This will provide the humans to have a better way of dealing with such kind of disasters and thus human progress can be achieved as well (Howard, 2011). References Beckman, K., 2011. The Impact of Japan’s Earthquake and Tsunami on the Global Economy. Hot Topic in Economics. [Online] Available at: http://www.conferenceboard.ca/economics/hot_eco_topics/default/11-03-21/The_Impact_of_Japan_s_Earthquake_and_Tsunami_on_the_Global_Economy.aspx [Accessed August 06, 2011]. Howard, C. J., 2011. WB: Japan Crisis To Impact Global Economy. ANC. [Online] Available at: http://www.abs-cbnnews.com/-depth/03/18/11/wb-japan-crisis-impact-global-economy [Accessed August 06, 2011]. Isidore, C., 2011. Will Global Economy Be Hit By Japan? CNNMoney. [Online] Available at: http://money.cnn.com/2011/03/14/news/international/japan_earthquake_tsunami_economic_impact/index.htm [Accessed August 06, 2011]. Rosenbush, S., 2011. How Japan Earthquake will Impact the Global Economy. Institutional Investors. [Online] Available at: http://www.institutionalinvestor.com/Article/2787087/How-Japans-Earthquake-Will-Impact-the-Global-Economy.html [Accessed Aug 06, 2011]. Worldbank, 2011. “The Recent Earthquake and Tsunami in Japan: Implications for East Asia”, Worldbank East Asia and Pacific Economic Update 2011. Vol: 1. Bibliography Harding, J., 2011. The Economic Impact of the Earthquake and Japan's Struggle to Recover. Markets. [Online] Available at: http://www.minyanville.com/businessmarkets/articles/japan-economy-japan-earthquake-japan-tsunami/3/14/2011/id/33347 [Accessed August 06, 2011]. Zarathustra, W., 2011. The Impact Of Japan's Earthquake On The Economy. Business Insiders. [Online] Available at: http://www.businessinsider.com/the-impact-of-japan8217s-earthquake-on-the-economy-2011-3 [Accessed August 06, 2011]. Read More