El-Erian on the current Japanese tragedy

Mohamed El-Erian has commented on the Japan tragedy.  While the enormous amount of human suffering is unimaginable as has been seen through the moving images and videos, it is evident, that the Japanese people have the infrastructure and capacity to work through this situation.  This is not an attempt by any means to downplay the suffering or discourage aid, but instead it is to recognise the largesse of the human spirit as manifested by the Japanese people.  Via FT:


While there is still considerable uncertainty, including on account of nuclear reactor risks, the experience of other countries suggests that the economic outlook will be dominated by five factors.

Japan’s economic growth rate will fall in the immediate aftermath of the natural disasters before rising sharply due to reconstruction activities.

Disruptions to supply chains and the loss of inventories will cause shortages and inflation to spike temporarily from very low levels.

The fiscal deficit and public debt will rise meaningfully due to lost revenues and, more importantly, emergency spending.

The central bank will ease monetary policy which, given policy interest rates floored at the zero bound, will involve the provision of extraordinary credit and liquidity facilities.

Last, the country will receive transfers from abroad, including the repatriation of funds held outside the country by Japanese residents.

Japan is a rich country that is also able to borrow at relatively low interest rates. As such, it definitely has the ability to rebound economically from these horrible natural disasters. Moreover, in a really good recovery scenario, Friday’s dreadful shock could even be a catalyst for internal political unity and for overcoming what has been two disappointing decades of economic performance. Indeed, a prolonged period of high and sustained growth is key to Japan’s handling of its domestic public dynamics.

The Japanese people are not alone in hoping for a rapid economic recovery. The rest of the world is with them. Governments and individuals in several countries are already mobilizing to help Japan via large donations of equipment, money and volunteers.
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