(Reuters) – Quake-hit Japan faces a recovery and reconstruction bill of at least $180 billion, or 3 percent of its annual economic output, or more than 50 percent higher than the total cost of 1995’s earthquake in Kobe.
Even though some extreme projections of the longer-term costs project figures closer to $1 trillion over several years, standard tallies akin to those used after the Kobe quake hover around this level.
The world’s third-largest economy, already saddled with public debt double the size of its $5 trillion output, must rebuild its infrastructure — from roads and rail to power and ports — on a scale not seen since World War Two.
Moody’s Investors Service warned on Monday the huge financing needs Japan faces may erode investor confidence in the country’s ability to repay its debts, forcing up borrowing costs.
“The earthquake may have shifted such a potential tipping point a bit forward, unless Japan’s political parties are galvanized by the crisis to also address the country’s long-term fiscal challenges,” Moody’s lead analyst Tom Byrne said in a statement.
The quake and tsunami have killed at least 10,000 people, officials estimate, striking a northeastern region that accounts for an estimated 6-8 percent of gross domestic product, compared with around 12.4 percent from the areas affected by the Kobe quake in 1995.
However, the loss of fixed assets and human capital from Friday’s quake, which also triggered several explosions at a nuclear power plant north of Tokyo, looks to be far greater. It comes at a time when oil is hovering near a 2-1/2-year peak and other commodity prices remain elevated.
The economic damage is likely only to shave a sliver off global growth and the tens of billions of dollars spent on the reconstruction bill should eventually boost Japan’s economy and the Asian construction sector.
But analysts also say costs could overshoot initial estimates.
“From the experiences, there is a tendency to underestimate,” said Brendan Brown, head of economic research at Mitsubishi UFJ Securities.
“There are many uncertainties — we don’t know how long power outages will last and that’s an ongoing cost in addition to reconstruction. There is a loss of output from dislocation. If that goes on for two months, that may dwarf the cost of reconstruction,” he added.
The Kobe earthquake is estimated to have cost $115 billion to $118 billion, or 2 percent of GDP in 1995 terms. This time — in a still unfolding disaster — initial estimates from Credit Suisse and Barclays have put the cost at $180 billion.
Mitsubishi UFJ Securities and Sarasin expect the cost could run as high as 5 percent of GDP.
Mitsubishi’s estimates take into account a wider economic cost including a loss of tax revenues, subsidies to various industries of the affected area, a loss of productivity following rolling blackouts on top of straight reconstruction costs.