Japan is facing its worst crisis since World War II. A 9.0 magnitude earthquake followed by tsunami towering more than 10 meters has rocked the world’s third largest economy. The condition worsened with the radiation leakage from crippled reactors at the Fukushima Daiichi nuclear power plant.
Japan, is one of the important pillar of the global economy, has got affected by the natural calamity and is supposed to push rest of the world back to recession. Initially economists thought that the implications would be limited. But now there assumptions are proving them wrong. Considering the role of Japan in world’s economy, this natural disaster could turn into a serious threat to the world economy as a whole.
Global energy market: The affect of Japan’s nuclear disaster on global energy market is difficult to determine. Different countries use different source of energy. It would only slowdown the construction of new nuclear plant in the coming near future.
As per the report of World Nuclear Association (updated in February 2011), 16 countries depend on nuclear power for at least a quarter of their electricity. France gets around three quarters of its power from nuclear energy, while Belgium, Bulgaria, Czech Republic, Hungary, Slovakia, South Korea, Sweden, Switzerland, Slovenia and Ukraine get one third or more. Nuclear power is a clean alternative to oil, coal and natural gas. There are also expectations for nuclear power to grow measurably in China, Russia, South Korea and other developing nations. However, Japan’s disaster would have warned other countries to take intense care while setting up any nuclear plant. It involves significant safety risk. Even before this disaster, electricity generation from nuclear plant was supposed to rise by only 10 % between 2009 and 2035 in the United States. This prediction was done by the EIA, annual energy outlook 2011. Along with it, according to IEA Electricity Information 2010, in the year 2008 40.8% of the electricity was produced through coal, 21.3 % through gas, 16.2 % through hydro. Nuclear energy contributes only 13.4 % to the electricity production. So, the affect of Japan’s nuclear disaster would be limited.
On the other hand, Japan might need to replace the energy from disrupted gas lines with energy imports. This demand can also raise the global energy prices.
Electronic industry: Natural calamity intensifying its effect by the destruction of man-made operations has devastated the north-east industrial area of the country. As a result of which automotive, petro-chemical, semi-conductor and many other factories have shut down. Cannon, Sony, Toshiba, Hitachi are not the exceptions. Apple also imports many of its parts from Japan. The country gives its significant percentage to the global electronic industry. However, this disaster has ability to change the scenario. Although China has also a large number of brands for electronic products, but most of its core components are made in Japan. According to a news-report, Honda has told US dealers that it will delay taking orders for Japanese-made cars and trucks. And, Toyota plants remain shuttered, as well. General Motors has also announced closure of its many factories because of the lack of many components from Japan.
Aviation Industry: The supply chain has also got affected by the destructing affect of this disaster on the aviation industry. The International Air Traffic Association (IATA) said that the disaster is expected to lead to a short-term sharp slow-down in air traffic in Japan. It has also warned for the hike in fuel prices, as Japan produces 3-4 % of global jet fuel supply. Some of which is also exported to Asia.
Agriculture sector: Although, agriculture does not play any important role in the country’s economy, and so is the case with the world’s economy, but this disaster has also effected its agro-sector. According to a recent analysis by Rabobank, the calamity could have a ‘dire’ effect on the food and agriculture industry. The tsunami has damaged paddies and other agriculture resources, which has turned the supply chain other-side. Fukushima nuclear plant could also have a devastating effect through its radiation problems on the agriculture. Shortages in supply-chain are likely to limit exports and cause imports to raise, states the report. The imports will increase from its trade-partners like US, Australia and China. This might also upshot the global food supply.
Foreign borrowing: In the coming months, Japan will start rebuilding its infrastructure, which will increase the demand for steel, iron, copper, cement and other construction materials. Unlike America, Japan runs its budget in deficit. And, this economic adversity might compel the country to borrow from it is own citizen. But, the requirement of money is so high, that it is very difficult to meet its need through the domestic saving market. This will compel the nation to go for foreign-borrowing. And, in such a scenario there could be a good possibility of Japan to pay higher rate of interest. As a result of which, the other indebted countries could have to raise their own rates to compete. This will increase the cost of money.
In the nutshell we can say that, the global effects of Japan’s disaster would be mixed. As indicated above this is likely to have some long term while some would have the short term effects. And, even the effects would be different on different country.
