Domestic economic impacts likely after Japanese earthquake

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Sunday, March 13, 2011

According to analysts, the major earthquake and subsequent tsunami that hit on Friday is likely to have major economic impacts within Japan, though the global economy is unlikely to be significantly affected.

Rolling blackouts are planned to start on Monday in addition to continuing through this summer and may have to take place next winter as well. According to an economist, Michala Marcussen, at Société Générale, a country's power supply "is a critical factor" to its economy. Marcussen said that if Japan's electrical infrastructure was severely damaged, then "that could have a durable [sic] impact on the economy."

The overall negative impact of the earthquake on Japan's gross domestic product (GDP) is expected to be only a few tenths of one percent, though that is expected to be enough to push Japan's expected recovery from its current economic slump back by several months. According to the Nomura Group, "[w]e had projected an April-June exit [from the slump] but now forecast July-September or possibly October-December." It added that most of the economic effects of the quake will probably be felt early this summer.

To fund the current rescue efforts, the Japanese government is reportedly considering raising taxes, as the estimated cost of rebuilding affected areas is as high as one percent of the total five trillion dollar GDP. Japan currently carries high levels of debt, estimated to be about ten trillion dollars, which is expected to make additional government spending for rebuilding efforts difficult.

The Japanese stock market index Nikkei 225 dropped 1.7% at the end of the day Friday; it closed fourteen minutes after the quake and tsunami struck. Beginning on Monday, when trading resumes, the Bank of Japan is, according to its governor, prepared to inject money into the economy in order to stabilize the markets.

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