Insurance costs for damage caused across Japan likely to be in region of £9bn adding further blow to indebted economy
A firefighter looks at burned-out vehicles at Hitachi port, north-eastern Japan, the day after the giant quake and tsunami struck. Photograph: AP
Industry in the world’s third-largest economy all but ground to a halt following the earthquake, as manufacturers ranging from Toyota to Nissan, Sony, Fuji and brewers Kirin and Sapporo shut down their operations in Japan to assess damage and allow staff to check on their families.
The quake is a shattering blow to Japan’s already heavily indebted economy, which recently endured a downgrade in its credit rating. Finance minister Yoshihiko Noda raised the prospect of an emergency budget to cope with reconstruction costs, but suggested that this would be hard to compile before the end of March.
Global prices for oil, grain and natural gas are likely to rise as a result of damage to Japan’s nuclear power stations, ports and infrastructure. Initial estimates put a figure of $10bn-$15bn (£6.2bn-£9.3bn) on the cost of the quake to insurers – which, if accurate, would rank the disaster among the 10 most costly of the last 30 years.
Early assessments indicate that the insurance cost will exceed the $8.5bn bill after last year’s Chilean earthquake, although it is unlikely to rival the record $71bn hit caused by Hurricane Katrina in New Orleans in 2005.
Ultimately, however, natural disasters often stimulate activity, as nations are obliged to pick up the pieces and rebuild. Takuji Okubo, an analyst at Société Générale, said Japanese consumers would have to replace lost cars and appliances, and massive construction would be needed in devastated areas. “The earthquake will most likely lead to stronger growth in 2011, rather than weaker,” he said.
The last big tragedy to hit Japan, the Kobe earthquake in 1995, resulted in $100bn of damage and required years of rebuilding. This time the quake hit the north of the country, which, with the exception of the million-strong city of Sendai, is relatively sparsely populated.
Dan Ryan, a global economist at IHS Global Insight, said: “If even a small fraction of homes and structures are destroyed – or become structurally unsound and need to be rebuilt – then the damages would be in the tens of billions of dollars.”
The Japanese yen rallied late on Friday in the hours after the earthquake – not because of confidence about economic prospects but due to the prospect of stricken Japanese investors repatriating funds from overseas. Tokyo’s stock market is likely to take a hit; in the week after the Kobe earthquake, Japan’s Nikkei index dropped 6% and over six months the market slumped by 25%.
The already elevated global price of oil, which is more than $100 a barrel, could be pushed higher as the fallout continues. In a research note, energy analysts at Barclays Capital said: “More product from the bottom of the barrel could be required to replace lost nuclear generation. Rebuilding is an energy-intensive process.”
Andrew Clark
Saturday 12 March 2011 19.22 GMT
Source: The Guardian