A Canadian bank predicts that Japan's powerful economy will continue to grow in the year ahead, despite the tens of billions it will cost to rebuild its disaster-ravaged regions.
The reconstruction cost is currently estimated at $200 billion, but TD Bank says that Japan has a history of bouncing back after disaster and the country can handle the financial burden of rebuilding.
Derek Burleton, the vice-president and deputy chief economist for TD Bank Financial Group, said the Japanese government will have to take on unforeseen and hefty debt to pay for the reconstruction, but the pain will be spread out over a number of years.
"Obviously the Japan government is going to have to take on a lot of debt to pay for this. Insurance companies weather some of it, but most of it will probably come out of the public purse," Burleton told CTV's Canada AM during an interview in Toronto on Wednesday morning.
In the short term, the bank expects that Japan's economic growth will slow down in 2011, expanding at only 1.4 per cent, owing mostly to the cumulative disruption the disasters will bring to the economy. But that growth will accelerate in the months ahead, with TD revising its growth expectations upwards to 2.0 per cent in 2012.
The bank recently issued an observation paper that suggested "the earthquake and tsunami have battered an area that constitutes roughly 8 per cent of the economy."
Despite the damage, Burleton said Japan's economy will gradually pick up steam as it recovers from the recent disasters and begins to invest in reconstruction.
"The short-term impact is negative, that's the first phase. You get a rebound and output as manufacturers begin to rev up activity and then you get the construction phase which will take probably several years to fully rebuild," Burleton said.
The reconstruction effort will actually help to spur economic activity within Japan and elsewhere, because of the immense demand for commodities that will be needed to rebuild damaged and destroyed infrastructure, as well as the massive spending that will take place.
"This disaster could actually help Japan's economy over the next couple of years," said Burleton.
The bank does not expect that that fallout from the disasters in Japan will disrupt the ongoing recovery in the global economy, but Burleton said that sudden shocks can fuel instability within global financial markets.
Since the quake and tsunami hit Japan last Friday, stocks have plunged on the Nikkei stock market, though they regained some of their lost value during Wednesday trading, when the benchmark index rose as high as six per cent. The ongoing nuclear crisis at Japan's Fukushima No. 1 (Dai-ichi) plant has also contributed to volatility in the markets.
With files from The Associated Press
