The terrible news coming out of Japan reminds one of the fragility of human life in the face of overwhelming natural forces. The thoughts of everyone at Tutor2u are with the people of the region affected by the earthquake and subsequent tsunami.
The narrow economic impact of the natural disaster will take many months to calibrate - Japan is one of the richest countries in the world and ought to have the resources to cope with the immediate aftermath. But her macro-economy has been weak for many years - the country has been struggling to shrug off a lost decade of slow growth and - more recently - one of the deepest recessions in her post war history.
Does the third largest but most indebted government in the world have any fiscal freedom to react? What will happen in the short term to industrial production, energy and food supplies and her export sectors?
Earthquakes have a special power to create hugely damaging economic consequences. Japan suffered losses of 10 trillion Japanese yen in the 1995 Kobe quake, 2.5 percent of the country’s GDP the previous year. Over time a rebuilding process will help to stabilise economic activity but there is an opportunity cost of having to devote scarce resources to rebuilding. The Japanese economy has endured a period of relative stagnation in part because many Japanese companies have out-sourced their manufacturing production to China and other countries where unit labour costs are lowest.
I have produced a series of charts below tracking some of the recent key changes in macroeconomic indicators for Japan and linked to some news coverage and audio-visual resources on how the earthquake may affect the Japanese economy
Hamish McRae: The cost of catastrophe and unrest is huge in both human and economic terms
BBC News (Feb 2011): Japan is no longer the world’s second largest economy
BBC News (Nov 2010): Japan grapples with deflation and demographics
BBC news: (Nov 2010): G20: Currency War and Japan
Guardian: Japan’s economy heads into freefall after earthquake and tsunami
Telegraph: Japan shuts down as economic fears grow
Growth and relative living standards
GDP per capita
Relative living standards compared to the EU
What is striking here is the decline in relative GDP per capita (PPS adjusted) for Japan compared to the European Union average.
Economic growth and unemployment in Japan
Economic growth and investment as a share of GDP
Sterling against the Japanese Yen
Hi-tech and ICT exports from Japan as a % of total exports