Động Đất Khủng Khiếp Ở Nhật (46)_Tsunami may lift Japan from slump: past events, such as the 1995 Kobe quake, show natural disasters can spur growth

Tsunami may lift Japan from slump: past events, such as the 1995 Kobe quake, show natural disasters can spur growth
Paul Cleary From: The Australian March 24, 2011 12:00AM


TWO decades before Japan's east coast was struck by the devastating March 11 tsunami, the entire country was wrecked by a financial tsunami that set it on a course of long-term economic decline. Optimists think, or hope, that the tsunami will be a catalyst for economic renewal for the world's third-biggest economy.
It would be nice to think so. Natural disasters test the fabric of the society they affect and often prove to be a boon for economic growth; they often transform economies for the better. The experience of the 1995 Kobe earthquake is encouraging for Japan, and for Queensland and New Zealand.

The magnitude-7.3 earthquake killed more than 6400 people and inflicted a damages bill of $100 billion. While industrial production slumped immediately after the disaster, economic growth kicked up above 3 per cent through the year. The stimulus from the rebuilding was felt well into 1996, when annual growth hit 4 per cent, before Japan slumped back to recessed rates of growth that have continued ever since.

Austrade chief economist Tim Harcourt told The Australian that the Kobe quake provided a welcome stimulus in the reconstruction phase and he says Japan will be providing important domestic stimulus in the reconstruction and recovery phase after the tsunami. He expects that Australia will contribute to this effort as a leading trade and investment partner of Japan.

But the tsunami is manifestly on a scale many times larger than that of Kobe, and when combined with ongoing nuclear fallout, this event is certainly going to test, if not break, the debt-ridden government's ability to respond.

While the cost of rebuilding in the private sector will be covered partly by insurance payouts that could reach $US300 billion ($298bn), the government appears to lack the financial wherewithal to respond, given that public debt is 2.25 times GDP.

The impact of the Queensland floods and Cyclone Yasi are likely to be very similar to that of Kobe: a short-term slump followed by very strong growth. In the case of Queensland, however, the rebuilding coincides with massive investment in resource developments.

Queensland Treasurer Andrew Fraser tells The Australian that prior to the disasters the state Treasury had forecast solid growth this financial year of 3.75 per cent, followed by 4.5 per cent the following year. These forecasts have now been changed to about 1 per cent this year, and 5.25 next year.

The Reserve Bank expected the Queensland disasters to take 1 percentage point off growth in each of the December and March quarters, according to its latest board minutes. But flooded coal mines could take longer to get back into operation than it had thought last month.

Mr Fraser says the state economy is headed for a rollercoaster ride, with a steep drop in growth followed by a surge that will lift the state out of the doldrums it had experienced throughout last year. He says the state will undergo an intense famine-to-feast economy, job shedding, spare capacity followed by acute shortages.

Prior to the disasters, Queensland's growth rate had lagged every other state in the economy. It is an extreme case of the two-speed economy, with the high dollar and the GFC hitting its tourism sector very hard, while mining regions were booming. In Cairns and the Gold Coast, property prices have been falling.

But Mr Fraser says double-digit growth in non-residential construction and in machinery investment in the latest December quarter figures underscores the underlying strength of the increasingly resource-driven economy. This year alone, resource companies have begun work on about $70bn worth of coal-seam gas projects in Queensland alone.

Asked about the slowness of insurance payouts, Mr Fraser said they explained why the state was feeling the short-term effects more acutely, but this meant that the benefits would be spread over a longer period.

Insurance will be a key variable in the local and international recovery. In past events, insurance payouts have quickly kicked in, serving as a form of stimulus to the economy. But in the most recent events, payouts appear to have been slower due to disputes over whether policies cover flood damage.

The Insurance Council of Australia says that it has so far paid out $2bn for the Queensland flood and just over $500 million for Cyclone Yasi.

Local manufacturers say they are yet to feel the surge in demand from reconstruction that they had expected. Paul Longman, managing director of mattress manufacturer AH Beard, told The Australian back in January that the company was preparing to meet a sharp rise in orders, given the destruction not only of homes, but also of retail outlets and wholesalers that stock the company's wares.

But Mr Longman, whose company has about a one-third share of the Australian market, suspects that slow insurance payouts are holding back demand.

"We expected to see a surge of demand, but it is yet to happen. In general, you would not know it happened," said the chief executive of the company that began making mattresses in 1899.

The business climate in Australia is becoming more unpredictable given the spate of natural disasters and political vagaries.

In fact, the eastern seaboard is struggling in one way or another while the resource states in the centre and west of the country are surging ahead.

The experience of Queensland has been felt in Victoria, which went through devastating bushfires in 2009 followed by floods this year. NSW has escaped natural disasters, but it has been wracked by a political nightmare that is unprecedented in the history of the biggest state economy in Australia.

After 16 years of Labor rule, NSW has won the wooden spoon as the worst economic performer. Over this period, the state's per capita income has actually declined in real terms.

Opposition Treasury spokesman Mike Baird, who previously had a high-flying career as a corporate banker with NAB, Deutsche Bank and HSBC, says he knows of several major businesses that have steered clear of the state.

The election on Saturday of a Coalition government will be an event that is the state's equivalent of the fall of the Berlin Wall, ending a long spell on inept administration dominated by toxic levels of corruption, cronyism and incompetence.

But like Japan, there are doubts about the ability of the government to arrest the decline.

NSW Coalition leader Barry O'Farrell might be a street smart politician who knows how to win elections, but he and most of his cabinet, with the exception of Mr Baird, lack business and managerial experience.

So far, the reform pledges have been fairly glib promises like payroll tax concessions for 100,000 jobs.

In order to present as a small target, Mr O'Farrell and his team have avoided any mention of the far reaching reform that NSW desperately needs. NSW contrasts with the experience of Queensland, which has benefited from strong governance and leadership, and on federal support, to recover from its devastating disasters.

All of the places affected by these disasters require substantial re-building of infrastructure. In the case of Japan, this could well include plans to replace its 55 nuclear reactors with low-carbon gas plants, or safe and clean renewable energy.

As Tim Harcourt says, Japan recovered in the 1940s as a poor country so it will recovery in the 2010s as a rich one.

But Japan had a lot of international help after WWII. It certainly looks like it will need significant support to recover from the tsunami, just as Queensland needs support from the federal government. So far, international institutions have been working together to help Japan, a key example being the $US25bn currency intervention to stem a rise in the yen ahead of insurance transfers. The currency spike followed the release of an estimate by disaster analyst RMS that put the payouts in the order of $US200-300bn.

As with Japan and other places affected by natural disasters, the scale of the reconstruction effort can be overwhelming, and so the recovery depends on the strength of institutions and the extent to which national or international co-operation is made available.