The way things seem now, several days after the deadly earthquake in Japan, the damage is around $100-300 billion. For the sake of comparison, the damage from Hurricane Katrina, which hit the US in 2005, was around $100 billion, similar to that of the major earthquake in Kobe, Japan in 1995.
As a proportion of Japan's economy, this means 2-6% of Japan's annual GDP (the damage from Katrina amounted to 0.7% of US GDP). The heaviest damage this time is in an agricultural area, not the center in terms of industry and population.
According to Japanese estimates, there will be 10,000 deaths (assuming the majority of missing are fatalities). That is about 600 people in terms of Israel's population size. It is a lot of human suffering, but definitely not an economic catastrophe for a power like Japan, especially in light of its past experience.
The earthquake in Kobe led to a boost in Japanese GDP, and it took almost seven years to fully rebuild. It was that way after World War II as well, when two atom bombs were dropped on the country. So it is reasonable to assume that despite the major tragedy, the current disaster in Japan will actually boost the growth of Japan's GDP and contribute to growth in the global economy as well.
True, Japan today has a very big national debt, of almost 200% of GDP, about $11 trillion, but its economic power allows it to increase the debt even by another $300 billion. It appears that most of the rebuilding will be seen in infrastructure - roads, electricity, water, trains, etc. - as well as in construction and cleaning up the agricultural lands. These are areas in which the Japanese are experts, and the strength of Japan's economy, together with the control and effectiveness of the Japanese in times of emergency, will allow them to rebuild themselves better than most other nations.
Japan has 55 nuclear reactors, which provide 35% of its electricity needs. The intensiveness in Japan of the use of nuclear reactors to generate electricity is very great. For the sake of comparison, in France, 85% of electricity comes from nuclear energy, while in the US the figure is about 20%. For the Japanese, it seems economically correct - a clean energy solution.
One of the consequences of the earthquake was an explosion in Fukushima, a large nuclear power plant which contains 6 nuclear reactors which generate a total of 4,700 megawatts (an amount similar to all the coal-powered plants in Hadera and Ashkelon). The overall cost of building a power plant like that can reach over $15 billion. The Fukushima power plant itself is located by the sea, about 300 kilometers north of Tokyo, in a relatively lightly populated area. There were plans to add, by the end of the decade, two big reactors with a total output of 2,800 megawatts (similar to all the power stations in Hadera).
It seems that the explosion and the leak from the Japanese reactor will delay, and raise the cost of, the construction of additional nuclear power plants around the world. There is also expected to be significant influence on the whole issue of carbon dioxide emissions, since coal, which pollutes more, will be used more.
The Japanese are very big consumers of liquefied natural gas (LNG) for generating electricity, and it appears that at least for the coming years there will be an advantage to power plants operating on natural gas or LNG in other places as well, such as China, Korea, and other countries in Asia. It appears that the alternative of wind turbines will also gain popularity.
It doesn’t appear that there will be a shortage of electricity in the world, but the proportion of nuclear energy will apparently not rise in the near future.
Dr. Yacov Sheinin is the CEO of Economic Models.
Published by Globes [online], Israel business news - www.globes-online.com - on March 14, 2011
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