REUTERS/Toru Hanai

Japan will bounce back quickly

“[…] On behalf of the OECD, I express our profound sorrow at the enormous loss of life and extend our condolences to all those who have been affected by this terrible tragedy. At the same time, we admire the courage and resolve of the Japanese people in face of adversity, and we are confident that Japan will emerge from this disaster stronger and better.

The Great East Japan Earthquake struck just when Japan’s economy was getting back on track and gaining momentum after a slowdown in the latter part of 2010. By early 2011, exports were accelerating, the unemployment rate was falling and confidence was rising.

The damage from the earthquake and tsunami is estimated by the government at 16 to 25 trillion yen–around 3-5% of GDP, making it the worst disaster in Japan’s post-war history. To put it in comparison, the 1995 Kobe earthquake–the worst disaster in Japan’s post-war history up to that point–caused 9.6 trillion of damage. The negative impact of the 3/11 disaster was magnified by the disruption of the electricity supply and the problems at the Fukushima plant.

In addition to the immediate damage and electricity shortages, the earthquake and tsunami have disrupted supply chains both within Japan and internationally. Tohoku is an important producer of parts and components in a number of industries, including autos. Even Japanese auto factories as far away as the UK have been forced to cut production in the wake of the disaster.

These negative factors will combine to reduce output in this quarter. The decline will not be near the 20% drop in the wake of the Lehman shock in 2008, but it will be significant nonetheless. It is important to stress that with very little data available since the 3/11 disaster, economic projections are exceptionally difficult and the error margins are large.

But we are already seeing signs of reconstruction spending that will drive Japan forward, including investment by firms and households. If we look back to Kobe in 1995, business investment in the Hyogo prefecture had risen by 18% two quarters after the earthquake, lifting business investment nationwide by 4%. Similarly, investment in housing was 54% higher.

And of course, the government has an important role to play in rebuilding infrastructure damaged by the earthquake and tsunami, and this will be an important driver of growth. Looking back again at the Kobe earthquake, government investment in Hyogo prefecture in the third quarter of 1995 rose by 21% on a quarter-onquarter basis–116% at an annual rate–resulting in a 6% rise nationwide. We know that the current government is capable of a similarly rapid response.

But this time, there is one significant difference compared to the Kobe earthquake. In 1995, the government budget deficit was less than 5% of GDP compared to around 9% in 2010. And government debt was 86% of GDP, compared to almost 200% at present. This time, reconstruction spending will have to be combined with efforts to improve the fiscal situation, which has become an important risk for Japan. […]”

Extract from remarks by OECD Secretary-General Angel Gurría, Tokyo, 21 April 2011. For the full 1,300 word speech, see www.oecd.org/speeches


©OECD Observer No 284, Q1 2011




Economic data

GDP growth: +0.6% Q2 2018 year-on-year
Consumer price inflation: 2.9% Aug 2018 annual
Trade: +2.7% exp, +3.0% imp, Q4 2017
Unemployment: 5.3% Aug 2018
Last update: 10 Oct 2018

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