The effects of the March 11th earthquake and subsequent tsunami in Northern Japan are still accumulating as the country sifts through the debris of entire communities while struggling to contain deadly radioactive material from the critically damaged Fukushima nuclear power plant. The death toll has surpassed 10,000 with speculation that the figure could triple when all is accounted for. The journey back to normality for countless families will be long and arduous, and in many cases will never truly reach a positive conclusion. There is no consolation for loss of life that a disaster such as this brings, but this forum is perhaps not the place to attempt an explanation of the emotional cost of disaster.
Economically speaking the scale of the destruction is immense. Houses, cars, businesses and infrastructure are all left in ruins. While it may seem logical to think that this devastation will have a permanent impact on the economic strength of the region, economists Eduardo Cavallo and Ilan Noy have suggested that in developed countries even massive disasters like this are unlikely to affect the economic growth rate of the country in the long run. Prime examples of astounding post-trauma economic growth recoveries are the Northridge, California community after the 1994 earthquake, the port city of Kobe, Japan after its 1995 earthquake and the Sichuan Provence in China after its 2008 earthquake. All of these well developed comparatively wealthy regions returned to somewhat higher economic growth rates than were being experienced pre-disaster.
Economists Mark Skidmore and Hideki Toyo attribute the phenomenon to the fact that the regions take the opportunity to move away from older, less productive industry and upgrade technology and infrastructure. It is much easier to change dramatically when you have to start from scratch. Disasters catalyse an accelerated depreciation for slow and failing industry, giving it a chance to either cut and run, or start over new.
Skidmore and Toyo also point out that the rate of economic recovery is highly dependent on the mode of natural disaster and the type of economy the disaster is affecting. If an economy that has the ability to redistribute resources (through insurance, government aid, manageable infrastructure) is hit with a geological disaster like an earthquake, it will typically regenerate quickly out of necessity. If that same geological disaster was to hit an economy incapable of redistributing resources (perhaps because adequate resources are scarce in the first place, such as that of a third world country), the economy will typically suffer and perhaps never regenerate to pre-disaster economic growth.
Damage to infrastructure and supply businesses will always directly impact the air transport industry, irrespective of the economy it is operating in. While the region affected by the earth quake and tsunami only accounts for a small proportion of Japanese industry (roughly 12.4%), figures from IATA suggest that the impact of the momentary holt to industry on the Japanese transport industry (both passenger and freight) has propagated to significant percentages of air transport industries worldwide, as these fractions are driven by the Japanese market. Most significantly 23% of China’s transport industry has suffered, with South-East Asian countries experiencing a similar impact. The USA 15%, individual European nations and Australia 6-7% and 3% of the UK air transport industry has been affected by the downturn in supply from Japan.
Japan is also a significant refiner of jet kerosene on the world stage, commanding around 3-4% of the global industry. Until the slack is picked up by other regions, upwards pressure on the jet kerosene margins over crude oil prices can be expected.
The losses incurred from this unavoidable natural disaster are significant, especially for the air transport industry, more so for Japan. But as history has shown Japan will reconstruct and absorb the losses, it will return to normality, so too will the growth rate of its economy and the economies effected by its initial downturn.