Japan is just starting the long process of digging out from last week’s massive earthquake, but economists say the country’s plight is likely to have only a small impact on the global economic recovery.
Using as guideposts other natural disasters, such as the 1995 Kobe earthquake and Hurricane Katrina in 2005, experts are predicting the disaster will slow Japan’s economy for a quarter or two until the rebuilding process stimulates activity in building and other sectors.
Even though the earthquake and tsunami are estimated to have claimed more than 10,000 lives, the country’s economic slowdown is expected to trim only 0.1 to 0.2 percentage points off global economic growth this year.
This assumes officials racing to shut down several damaged nuclear power generators are able to prevent widespread fallout — the fear of which has prolonged the initial phase of the disaster, rattled global markets and prompted some people to leave Tokyo.
Stock markets swooned again on Tuesday on fears over the nuclear crisis, although by late in the day the Dow Jones Industrial Average had rebounded slightly following the Federal Reserve Board’s decision to maintain interest rates at their current level.
The Nikkei 225 led stocks down Tuesday, falling 10.6 percent to 8,605.15 in Tokyo. The selling spread to Hong Kong, where the Hang Seng Index fell 2.9 percent, and then to Europe. The DAX dropped 3.2 percent in Frankfurt as the CAC 40 declined 2.5 percent in Paris and the FTSE 100 fell 1.4 percent in London as markets closed.
But on Wall Street, the S&P Retail Index sank only 0.6 percent, or 3 points, to 500.63, and the Dow Jones Industrial Average slipped 1.2 percent, or 137.74 points, to 11,855.42.
The pressure continued to mount on luxury stocks on both sides of the Atlantic. Among the decliners were PPR, down 5.3 percent to 100.20 euros, or $139.81; Richemont, 3.7 percent to 49.19 Swiss francs, or $53.03; Tiffany & Co., 3.6 percent to $57.68; LVMH Moët Hennessy Louis Vuitton, 2.2 percent to 104.25 euros, or $145.46, and Coach Inc., 2.1 percent to $52.02. All of these company’s shares also declined sharply Monday.
“I don’t know that the stock market is telling us anything other than the fact that some folks are just running scared,” said Ken Goldstein, an economist at The Conference Board. “As terrible as all of this is, the global economy is about $100 trillion and it’s big enough and dynamic enough that this is not much more than a squiggle for the global economy.”
Goldstein said environmental disasters tend to be “big economic events for small regions.” But he added that the dynamic could change if Japan is unable to get control of the imperiled nuclear power generators.
“The biggest threat that Japan represents is the uncertainty that it creates,” said Frank Badillo, senior economist at Kantar Retail. “It’s a shock to the economy in Japan; in the world there’s a lot of question marks about what’s affected.”
If consumers internalize those doubts — and it’s not clear they will — it could lead them to pull back.
“Sentiment fell sharply in early March due to the recent surge in oil prices amid turmoil in the Middle East,” said IHS chief economist Nariman Behravesh in an analysis. “The Japanese earthquake, with extreme uncertainty over the extent of the nuclear disaster there, may add to a sense that global events are spinning out of control. This can make consumers — and, perhaps, businesses too — more fearful, which in turn can lead to postponement of decisions to purchase or hire.”
The fashion industry continued to offer charitable aid. Coach Inc. on Tuesday pledged 400 million yen, or about $5 million, to the Japanese Red Cross Society, while Kohl’s Corp. donated $250,000 to the Japanese Red Cross Society. Fashion Delivers solicited donations of apparel, shoes and home products and worked with global agencies to facilitate delivery.
In Tokyo, residents remained wary and the fashion and retail industries continued to adapt to the crisis.
Japan Fashion Week organizers cancelled the fall-winter 2011 edition of the event, which was slated to take place next week. Several brands had already canceled or postponed their shows indefinitely.
Although there were conflicting reports as to the severity of the nuclear problem, the serious radiation risk appears limited to the 19-mile radius around the Fukushima Daiichi power plant. Still, about 160 miles away in Tokyo, radiation levels reached higher-than-normal levels Tuesday. Government and energy authorities stressed that those levels were not harmful.
Tokyo Electric Power continued to enact rolling blackouts in the outlying parts of the city. Much like Monday, the first day of the blackouts, many retailers closed entirely, shortened their operating hours or — at the least — dimmed their lights and neon signs. Some companies encouraged their employees to stay home and many train lines were running intermittently. Foot traffic was lighter than normal.
Japanese television carried images of foreigners at the airport catching flights out of Japan and there were reports of Western companies evacuating their executives from Tokyo. The French and German embassies have suggested their citizens leave. Some seasoned journalists are also choosing to move to spots elsewhere in the country, like Osaka. On Tuesday night, the Tokyo Station bullet train platform for Osaka was crowded with Japanese families, especially those with young children, leaving the city.
Although TV channels seemed to resume some normal programming Tuesday afternoon and evening, that changed when a magnitude-6 quake struck Shizuoka, an area outside Tokyo, at about 10:30 p.m.
Tokyoites continued to make a rush for batteries, emergency kits and food. Certain items like rice, bread, crackers and ramen noodles have been cleared out entirely from supermarket and convenience store shelves.
European companies with operations in Japan were trying to assess possible damage and keep commerce going, while also extracting employees and mobilizing clothes and food to help the most affected regions.
Akris has been in daily telephone and e-mail contact with its 20 to 25 employees in Tokyo.
“Our people are all fine,” said an Akris spokeswoman. “Life seems to be going on OK. Since Saturday, they can go to the office and go home again, though the office and shops close a bit earlier in the evening because of power shortages. They have water and electricity — but in intervals. But now, this morning, they seem to be getting worried. Until now, there was the feeling the country would get it all under control, but the tone has changed.”
The opening party of Escada’s largest Japanese flagship in Roppongi Hills, scheduled for March 29, was canceled Monday. “I’m on the phone twice a day with the managing directors, and today we sent our headquarter people back home so they can work from there. In general, people can arrive later and go home earlier,” said Bruno Sälzer, chief executive officer of Escada, which draws 10 percent of its business from Japan.
Rena Lange employs 15 people in Japan, two thirds of them in Osaka, the remainder in Tokyo. “I’ve been in touch with them since Saturday, and everyone was completely overwhelmed,” said Lange ceo Daniel Gunthert.
Gunthert predicted the luxury industry would suffer. “Surely there will be cancellations in the year ahead,” he said. “When all of this gets back to normal is the big question.”
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