Effect of Japanese Earthquake on the Economy

March 15, 2011

The earthquake in Japan has left many wondering what the impact will be on the world economy.  Will it lead to squeezed supplies of goods from computer chips to auto parts and raise fears of higher interest rates?

According to an article by the Associated Press, the damage to the U.S. and world economies is expected to be relatively moderate and short-lived. Oil prices are falling, helping drivers around the world. And the reconstruction expected along Japan’s northeastern coast could even provide a jolt of economic growth.

Autos and auto parts make up more than one-third of U.S. imports from Japan. As a result, shutdowns of Japanese auto factories could disrupt production at U.S. plants owned by Japanese automakers.  At the same time, some U.S. auto parts makers could benefit if Japanese plants in the United States substitute U.S. parts for those they usually get from Japan.

Japan’s contribution to the world’s economy fell from 18 percent in 1995 to 9 percent in 2010, according to CLSA. And the area hardest hit by the quake accounts for just 6 percent to 7 percent of Japan’s output, about half as much as the area hit by the 1995 Kobe quake, the Organization for Economic Cooperation and Development estimates.

Click here to read more from the Associated Press.