Although the March 11 earthquake and tsunami in Japan will hurt the country’s already struggling economy, economists are optimistic that the impact to the global economy will be minimal. Japan’s government leaders met days after the quake to assess economic damage, with Chief Cabinet Secretary Yukio Edano declaring that, “The quake is expected to have considerable impact on a wide range of our country’s economic activities.”

While it will take several weeks before the extent of economic damage is known, the disaster has already caused the shut down of key ports and suspended production at several automakers and many other manufacturing companies, including Sony and Mitsubishi. In order to maintain financial stability in the country’s banking and financial markets, the Bank of Japan has added $183 billion into money markets and doubled its asset-purchase plan. However, leading economists are carefully analyzing two key questions: How quickly will Japan’s economy recover? What impact will the Japan disaster have on the global economy?

History offers some clues, as researchers look at how advanced countries in the past recovered from similar disasters. According to researchers, historical data indicates that countries with high levels of income, financial development and education tend to rebound quickly from disasters. “As incomes rise in a society, you can devote more resources to safety. So economies that have relatively high exposure to earthquakes or hurricanes start taking the precautions they need. Japan is among the best prepared in the world because they have high exposure and high income,” said Mark Skidmore, economics professor at Michigan State University. The country proved this back in 1995 when a 6.8 magnitude earthquake shook Kobe, Japan, home to the world’s sixth largest container port. The country’s industrial production dipped for one month, yet rose steadily in subsequent months. In that year, Japan’s economy actually grew by 1.9 percent and by 2.6 percent the following year. “Despite the scale of the disaster, it is hard to find much evidence in the macroeconomic data of the effects of the Kobe earthquake,” notes Richard Jerram, chief Asian economist at Macquarie in Singapore who monitors Japan’s economy.

Granted, Japan’s economy and public finances were stronger in the mid-1990s compared to today, but economists remain confident that Japan has the capacity to rebound. “We don’t know yet how devastating this is going to be economically, or even in terms of human casualties, but Kobe was able to rebound very quickly and I think there is the same potential here,” said Skidmore. “They have the resources. They have the social and economic and government infrastructure to effectively utilize the resources that may come in from outside as well as internally. They can focus not just insurance but also government assistance to respond effectively.”

Japan’s ability to utilize resources bodes well for reducing the impact of the disaster on the global economy. To date, J.P. Morgan economists have not changed their global growth forecast of 3.7 percent for the first half of 2011. “The shocks to date would have to magnify considerably to push global growth below this trendline,” they reported. Other economists concur that the harm to the global economy will be negligible and short-lived. “I don’t view this as having a significant impact on global growth,” said Dr. Nariman Behravesh, chief economist at IHS Global Insight. “Clearly it will add to Japan’s fiscal woes, but I think they can get through this one without serious problems.”

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