The world — obsessed with the new — had for years glibly dismissed Japan as a part of the past, preferring instead to enthuse over China and other emerging economies.
But now, like the old man in the workplace, ignored until he stops doing his job, this horrible disaster has made clear Japan's still critical role in the global supply chain and the global economy.
Still, if smugness can offer some satisfaction, it cannot generate electricity or staff factories. And Japan now needs to do both. The questions are: How soon, if ever, will Japan recover its former productive role and how will the shock of this disaster change its economy's long term direction?
Too much uncertainty remains to make any precise forecast on timing. Even now, three months after the first quake struck, questions remain about when, or if these reactors can resume generating electricity, as some have already have. Neither is the extent of damage to the reactors yet clear, nor is the severity of radioactive contamination. Since these reactors have several layers of containment shielding, even the cracked one hides the full extent of damage. Without some notion on these fronts, no one can gauge how fast rebuilding can begin.
Even after rebuilding begins, it will take years to ascertain exactly how bad things got. At Three Mile Island, for instance, it was five years after the disaster ended that the Nuclear Regulatory Commission could open the containment vessel completely to discover that during the trouble, half the nuclear fuel had melted and done so quite quickly. Of course, the delay at Three Mile Island was welcome, as it would be in Japan if a situation similarly severe has occurred at Fukushima. Those same containment vessels that hide the information also protect. They were the reason why Three Mile Island avoided contamination and death and why, so far, it seems, Japan has avoided the severe contamination and death associated with the Chernobyl nuclear accident in 1986 where there was no containment vessel.
Still, despite the huge remaining mystery, it is possible to draw some broad conclusions about economic and financial prospects for Japan and the rest of the world. It is certainly clear that the immediate shuttering of much commercial and industrial activity in Japan will drive down economic activity there in the second quarter and possibly in the third as well. It is also clear that the repercussions of this economic interruption will almost certainly crimp economies elsewhere that use Japan as a supply source — though for them, the economic shortfall will not likely turn growth to decline. It also seems likely, contrary to commonly held beliefs these days, that one way or another the supply chain problems will quickly dissipate. But after such immediate effects, Japan will rebuild and faster than the consensus of opinion presently expects, and this crisis has the potential to alter the fundamental directions of the Japanese economy. Each phase of renewal has its investment implications. However, a change in economic direction would open a number of investment opportunities in retailing, for instance, not typically associated with Japan.
Japan's economy has already felt the practical weight of this tragedy. The Tohoku region produces just under 9% of Japan's overall national output. Beyond that, Japan has lost some 25% of its electric generating capacity, extending the adverse economic effects far beyond the region immediately affected. Many factories cannot run as actively as they would like. Transportation links have broken down or have suffered disruptions, slowing the shipment of goods and the movement of people to and from work. The shock of events has also understandably set back consumer and business confidence, causing cutbacks in spending, hiring and business expansion plans generally. As these effects continue to play out, all major economic gauges will likely pause or decline. Accordingly, the consensus forecast for real Japanese growth has gone from a meager 1.5% rate of expansion in 2011, to a modest 0.4 % dip. Some prominent Japanese forecasters worry about a 1.5% drop in real economic activity.
Japan's impact on the rest of the world seems to have arrived more in detail than generally. In aggregate, Japan simply no longer carries the weight it once did to rock the global economy. It presently amounts to less than 9% of world GDP, far below the almost 18% it constituted at the time of the Kobe earthquake in 1994. Japan's slow growth rate in past years makes it even less significant to the global growth picture. The International Monetary Fund (IMF) estimates that Japan, during the past five years, had contributed a mere 1.0% to overall real global growth. The removal of such an influence would hardly be noticed. But if aggregate effects mean less, the particulars of certain supply chains will give Japan's immediate troubles an outsized global impact.