Right now the world’s preoccupied with the shock and awe of the Japan Crisis. And rightfully so. But eventually the conversations are going to whip around to reconstruction.
And that brings up to two key questions: How much will it cost? And when will it have a positive impact on economic growth?
Here’s a rough idea based upon the information currently available.
- S&P expects a short-term economic dip in Japan, but reconstruction efforts could help to offset some of the impact. “Reconstruction and recovery efforts in later quarters will, however, offset some of that decline. S&P estimates total cost of reconstruction and recovery will exceed the $159 billion bill for the Kobe earthquake in 1995. (Standard & Poor’s)
- Rebuilding homes, factories, roads and bridges could cost as much as $200 billion, some reckon. Studies of the economic effects of past natural disasters – as well as Japan’s own experience after the 1995 earthquake in Kobe – suggest that the macroeconomic effects of the tsunami, though hardly negligible, won’t be devastating and won’t last very long. Less than 15 months after the earthquake, in March 1996, manufacturing activity in greater Kobe was at 98% of its projected pre-quake level. (The Economist)
- Preliminary estimates for reconstruction reach 16 trillion yen, 1.6 times the cost of the 1995 Kobe earthquake. (Businessweek)
- Rebuilding work in Japan may total $200 billion, more than the projected spending after Hurricane Katrina. “The big issue in Japan right now is the logistics,” CFO, Patrick Campbell, said. (3M Co.)
- The early estimates from analysts and economists are $180 billion in damages. Of course the crisis is escalating. If you throw in the radiation scare and people from overseas are going to stop coming to Japan, the hit on tourism – obviously the number could go up from there. (Reuters)
- HSBC Chief Economist, Stephen King, said it was still too early to put a figure on the economic costs. The area of Japan affected by the tsunami produces around 4.1% of the country’s GDP, suggesting first-round economic effects could be limited, he said. “At this stage, it’s too early to come up with meaningful estimates of the overall impact of the terrible events in Japan,” King wrote in a research note. (HSBC)
- Barclay’s GDP projections suggest a short-term economic dip with Q2 GDP revised down to +0.8%, Q3 up to +3.2%, and Q4 up to +3.0%. “Fiscal policy is the key to moving from a phase of production decline to a phase of overall increase in demand.” (BusinessInsider.com)
- International Monetary Fund spokeswoman, Caroline Atkinson, said that historically growth can rebound quickly and strongly given the reconstruction efforts. But she added, “There is a lot of uncertainty, actually, I’m not sure that anybody knows quite when the power situation will be resolved.” (Fox Business)
- The disaster is expected to hit Japanese output sharply over the coming months, but economists warned it could result in a deeper slowdown if power shortages prove significant and prolonged, delaying or even scotching the “v-shaped” recovery that followed the 1995 Kobe earthquake. Most believe the direct economic hit will total between 10 and 16 trillion yen, resulting in a contraction in second-quarter gross domestic product (GDP) but a sharp rebound in the latter half of 2011 as reconstruction investment boosts growth. (Yahoo! News)
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